Does corporate governance matter in competitive industries?
Xavier Giroud , Holger M. Mueller

Journal of Financial Economics

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.