This study investigates the impact of corporate governance and product market competition
on total factor productivity growth for two large samples of German and UK firms.
In poorly performing UK firms, the presence of strong outside
blockholders lead to substantial increases in productivity. Contrarily, for German
poorly performing and distressed firms, it is bank debt concentration which stimulates
productivity growth. Whereas high bank debt concentration also supports productivity
growth in German profitable firms, leverage is unrelated to productivity growth in
UK firms. Weak product market competition in the UK has a negative impact on productivity
growth of in both widely-held firms and concentrated firms with the exception of
firms controlled insiders (directors). These seem able to generate productivity increases
in firms subject to little market discipline. For profitable German firms, the relation
between strong blockholder control and productivity growth is limited. Only control
by banks, insurance firms and the government can somewhat reduce the negative effect
of weak product market competition.