Corporate Governance, Product Market Competition, and Payout Policy

This paper investigates how the interaction between internal corporate governance and product market competition affects corporate payout. Empirically, existing papers demonstrate that corporate governance has a significantly negative effect on corporate payout; however, we observe that this negative relation is observed only in less competitive (concentrated) markets, and disappears or decreases in more competitive markets. The result suggests that the substitution effect between internal corporate governance and product market competition in the effect on firm value, as suggested in previous literatures, is also valid in payout policy. Our results will provide practical and institutional implications regarding the most efficient method of finding optimal internal corporate governance structure given market structures.