The Economics of Corporate Governance and Mergers

The Economics of Corporate Governance and Mergers

Edited by Klaus Gugler and B. Burcin Yurtoglu

This book provides an insightful view of major issues in the economics of corporate governance (CG) and mergers. It presents a systematic update on the developments in the two fields during the last decade, as well as highlighting the neglected topics in CG research, such as the role of boards, CG and public interest and the relation of CG to mergers. Two important conclusions can be drawn from this book: the first is that corporate governance systems that better align shareholders’ and managers’ interests lead to better corporate performance; second, there is an important relationship between CG structures and the quality of firm decision-making, one of the most important being the decision to merge or take over another firm.

Chapter 14: The Impact of Competition on Macroeconomic Performance

Karl Aiginger

Subjects: business and management, corporate governance, economics and finance, corporate governance


1 Karl Aiginger 1 INTRODUCTION AND OBJECTIVE The competition–innovation–performance triangle is investigated at the micro level from the days of Schumpeter to the works of Aghion today. This chapter investigates the impact of the toughness of competition on the macroeconomic performance of countries. The relation between the degree of competition and a company’s performance is at the heart of competition policy, and the relation between competition and innovation is discussed and investigated intensely in industrial economics. The impact of competition on innovation started with Schumpeter’s hypothesis2 that monopoly profits were necessary for innovation, leading then to u-curve relationships where innovation is largest for a medium-range degree of competition, but lower for very tough as well as for very lax competition. Empirical studies on the growth differences between countries increasingly stress the role of institutions,3 but refer more often to regulation than to competition. Conventional macroeconomic growth models did not model the impact of competition, but assumed perfect competition. This changed in the New Growth Theory, where growth depends on purposeful and maximizing activities for which competitive pressure plays an important role. However, this has not resulted – with very few exceptions (see Griffith and Harrison (2004) or Salgado (2002) – in the inclusion of competition variables in empirical growth equations. We use a set of thirteen indicators on the toughness of competition. The set combines survey data from managers, but also from experts, with the data on the regulation of product markets being provided by the...

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