Does product market competition discipline managers? Evidence from an exogenous trade shock and corporate acquisitions
Bibliographic record
Abstract
Abstract Research question/issue This study uses the 1989 Canada‐United States Free Trade Agreement (FTA) to study the effect of increased foreign competition on the efficiency of major corporate investment decisions. The analysis builds on the disciplining theories of competition that suggest that managers facing greater competition should make better investment decisions, resulting in more wealth created for shareholders. Research findings/insights Using a sample of more than 2000 mergers and acquisitions, the study finds that acquirers exposed to greater increases in foreign competition experience better acquisition performance. The positive impact of increased competition is stronger in acquirers with relatively higher agency costs prior to the FTA. Managers of acquirers exposed to greater foreign competition are more likely to be terminated following value‐destroying acquisitions. Theoretical/academic implications This study provides novel empirical evidence showing that increased foreign competition results in better investment decisions and that the result is likely due to the disciplining effects of competition. This evidence adds to a growing body of work on the disciplining role of competition and on the effects of increased foreign competition on corporate decision‐making. Practitioner/policy implications This study is relevant to policymakers because the extent of competition can be influenced by policy decisions. For regulators, it is worth considering that reducing import tariffs and other entry barriers into product markets may lower agency costs and increase the efficiency of corporate investment. This is a topical issue due to the increase in globalization and ongoing debates about further liberalization of trade relations.
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How this classification was reachedexpand
Full frame distilled prediction
Teacher imitationNot calibrated prevalence, not ground truth. Human validation pending. Learned from the 10,348 direct Codex labels and 10,348 direct Gemma labels. Candidate is the union of thresholded teacher heads; consensus is their intersection. These outputs are machine_predicted_unvalidated and are not human labels or direct frontier model labels.
Codex and Gemma teacher scores by category
| Category | Codex | Gemma |
|---|---|---|
| Metaresearch | 0.001 | 0.000 |
| Meta-epidemiology (narrow) | 0.000 | 0.000 |
| Meta-epidemiology (broad) | 0.001 | 0.000 |
| Bibliometrics | 0.000 | 0.001 |
| Science and technology studies | 0.001 | 0.000 |
| Scholarly communication | 0.000 | 0.005 |
| Open science | 0.001 | 0.000 |
| Research integrity | 0.000 | 0.000 |
| Insufficient payload (model declined to judge) | 0.003 | 0.000 |
Machine scores (provisional)
The two teacher heads of the student model, read on this work. A score orders the frame for review; it never asserts a category, and the validation status ships verbatim with every row.
Baseline scores from an immature model (maturity gate not passed, 7 training rounds). Scores rank; they never assert a category.
score_only:v0-immature-baseline · verbatim from the scoring run: score_only means the number may rank works, and no category label ships from itClassification
machine, unvalidatedMachine predicted; a candidate call from one teacher head, not a consensus.
How this classification was reached, model by model and score by score, is at the end of the page under "How this classification was reached".