Market competition and construction firm productivity: the role of market regulation in a developing economy

Purpose Improving productivity growth remains a central focus in the construction industry. However, whether the intensity of market competition (MCOMP) can improve construction productivity remains underexplored despite its potential impact, especially during changes in market regulation (MREG). Therefore, this paper examines whether the intensity of MCOMP has increased between two distinct phases of MREG in Malaysia: 2009–2014 and 2015–2020, with the latter period marked by a significant increase in MREG intensity. Subsequently, this paper models the impact of MCOMP on total factor productivity (TFP) and profit margin (PM) across 55 construction firms in Malaysia. In addition, the model includes the moderating effect of different phases of MREG by investigating how these impacts vary across two distinct phases of MREG: 2009–2014 and 2015–2020. Design/methodology/approach Boone’s relative profit difference (BRPD) test is used to assess the intensity of MCOMP, determining whether MCOMP has increased between 2009–2014 and 2015–2020. Unlike standard concentration metrics, BRPD captures how efficiency differences affect profitability, thus offering a more in-depth view of competition. Subsequently, the research employs the generalized method of moments (GMM) to model the impact of MCOMP on TFP and PM while addressing potential endogeneity issues related to reverse causality and omitted variable bias. Findings The BRPD test indicates a significant increase in competition intensity from 2009–2014 to 2015–2020. In addition, the GMM results show that MCOMP positively affected TFP across both phases, suggesting that competition drives firms to optimize firm productivity. While MCOMP positively affected profit margin from 2009–2014, this turned negative during 2015–2020 due to heightened MCOMP intensity. This is likely due to intensified bidding competition prompted by increased foreign entry and improved market-oriented policies. To remain competitive, firms may have improved the allocation of inputs and outputs to improve TFP, thus enabling firms to make cost and price adjustments and driving down PM aggressively. Originality/value This study’s methodological approach combines BPRD for evaluating changes in MCOMP intensity and GMM to model the impact of MCOMP on TFP and PM of construction firms during changes in MREG phases. The findings provide valuable implications for construction management and add conceptual clarity to understanding competition dynamics in the construction industry.