Product Market Competition, Government Control and Cash Flow Risk Evidence of Chinese Corporations

The examination of a sample of Chinese A-share listed companies demonstrated that product market competition holds an external governance mechanism, which can reduce corporate cash flow risk. Considering different hierarchies of government control, this paper finds that compared with non-government controlled and local government controlled enterprises, product market competition creates a stronger governance effect on enterprises that controlled by the central government. Further examination about the quality of local governments reveals in circumstances with higher local government quality, the governance effect of product market competition is relatively heavier, and cash flow risks of sample enterprises show a more obvious reduction.