We appreciate helpful comments and suggestions from Claudia Champagne, Alain Coën, Claude Fluet, Gilles Lambert, Ahmed Marhfor, Dalibor Stevanovic, Nicolas Vincent, and Pierre-Yves Yanni on previous versions of this paper. We also received valuable comments from seminar participants at the 2012 Administrative Sciences Association of Canada (ASAC) Conference, the 2012 CIRPÉE Conference, the 2012 IFM2 Mathematical Finance Days and Université de Sherbrooke. Abstract:We investigate the empirical relation between competition and corporate governance and the effect of country characteristics on this relation. We find that competition is associated with strong corporate governance, but only in less developed countries. We next examine the impact of corporate governance on firm value given the level of competition. We find that competition and corporate governance appear to be complements in explaining firm value in developing countries, while in developed countries they are substitutes.

We investigate the role of country characteristics on the competition-governance relation. We find that competition is associated with higher ratings in corporate governance, but only in developing countries. Further, corporate governance is associated with greater firm value, but only in less competitive industries from developed countries. For developing countries, the evidence suggests that corporate governance is valuable mostly in competitive industries. Additional tests show that corporate governance increases labor productivity and cost efficiency, mostly in less competitive industries in both developed and developing countries. Furthermore, in developing countries, corporate governance increases investment in capital, but primarily in competitive industries.

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