<p>This study examines the impact of product market threats on the cost of equity capital. Utilizing product market fluidity as a proxy for firm-level competitive threats, we find that heightened competition is associated with a lower cost of equity. We identify operating efficiency and investment efficiency as key channels through which this negative relationship operates. This negative association is more pronounced among firms with severe agency problems, suggesting that competition serves as an external governance mechanism. Furthermore, our results reveal that firm-level competition has an incremental negative effect on the cost of equity, even after controlling for industry-level competition. Overall, our findings highlight that product market competition encourages managerial stewardship, effectively reducing slack and enhancing operational efficiency.</p>