Product Market Competition and Agency Conflicts: Evidence from the Sarbanes Oxley Law
نویسندگان
چکیده
We study the effect of product market competition on the alignment of incentives between management and shareholders in public U.S. firms. We find that competition reduces agency conflicts. Firms in less competitive industries are less efficient than firms in more competitive industries and the Sarbanes Oxley regulation, aimed at mitigating agency conflicts, improved efficiency mainly in the less competitive industries. Product market competition is also a substitute for other governance mechanisms as firms in less competitive industries are more likely to employ stronger governance mechanisms to align management interests with those of the shareholders.
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