Product Market Competition, Corporate Governance and Legal Origin

Using the persistence of corporate profits as a measure of the intensity of product market competition in 19 countries for the period 1995-2005, we find that civil law systems are more competitive, in this sense, than common law ones. Greater shareholder protection increases competition between firms in common law countries, but reduces it in civil law ones. We conclude that shareholder rights act as complements to product market competition in the common law world but not in the civil law world, and explain this result by reference to the common-law origins of shareholder-orientated corporate governance