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Does product market competition moderate the impact of promoter ownership on firm value?

Sethiya Anuja (Department of Finance, FLAME School of Business, FLAME University, Pune, India)
Thenmozhi M. (Department of Management Studies, Indian Institute of Technology Madras, Chennai, India)

Managerial Finance

ISSN: 0307-4358

Article publication date: 26 September 2022

Issue publication date: 26 January 2023




This study explores whether product market competition is a substitute for or complementary to good internal governance through promoter holdings. Specifically, it examines the impact of product market competition on the linkage between promoter ownership and firm value and investigates whether this impact varies with the type of blockholders and level of ownership.


The authors used a fixed-effect panel regression method to analyze 1,136 National Stock Exchange-listed firms with 10,770 observations between the years 2005 and 2017. The authors computed product market competition using the Hirschman–Herfindahl Index and used the two-stage least squares regression model to address the issue of endogeneity.


Competition is a substitute for good corporate governance, especially in highly competitive industries, while promoters enhance firm value only in less competitive industries. This supports the theory that competition hinders a manager's “quiet life” hypothesis and creates disciplinary pressure to perform well. Additionally, the authors find that competition acts as a complement to promoters who are state-owned blockholders, while it acts as a substitute for promoters who are family-owned and private-owned blockholders.


This is possibly among the earliest attempts to integrate promoter ownership, product market competition, and firm value with the type of blockholder, especially in the context of the Indian market after 2005. The authors also provide evidence of situations in which both external and internal governance mechanisms either synergize or mitigate each other.



Anuja, S. and M., T. (2023), "Does product market competition moderate the impact of promoter ownership on firm value?", Managerial Finance, Vol. 49 No. 2, pp. 378-397.



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