TY  - JOUR
AU  - Giroud,Xavier
AU  - Mueller,Holger M.
TI  - Does Corporate Governance Matter in Competitive Industries?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14877
PY  - 2009
Y2  - April 2009
UR  - http://www.nber.org/papers/w14877
L1  - http://www.nber.org/papers/w14877.pdf
N1  - Author contact info:
Xavier Giroud
MIT Sloan School of Management
100 Main Street, E62-639
Cambridge, MA 02142
Tel: (617) 324-3901
Fax: (617) 258-6855
E-Mail: xgiroud@mit.edu

Holger Mueller
Stern School of Business
New York University
44 West Fourth Street
Suite 9-190
New York, NY 10012-1126
Tel: 212/998-0341
Fax: 212/995-4233
E-Mail: hmueller@stern.nyu.edu
AB  - By reducing the threat of a hostile takeover, business combination (BC) laws weaken corporate governance and increase the opportunity for managerial slack. Consistent with the notion that competition mitigates managerial slack, we find that while firms in non-competitive industries experience a significant drop in operating performance after the laws' passage, firms in competitive industries experience no significant effect. When we examine which agency problem competition mitigates, we find evidence in support of a "quiet-life" hypothesis. Input costs, wages, and overhead costs all increase after the laws' passage, and only so in non-competitive industries. Similarly, when we conduct event studies around the dates of the first newspaper reports about the BC laws, we find that while firms in non-competitive industries experience a significant stock price decline, firms in competitive industries experience a small and insignificant stock price impact.
ER  -