Debate on privatization or product market competition (PMC) in promoting firm efficiency has not reached conclusive results. A series of papers in public choice literature argue that increased competition in product markets plays a more important role than privatization in promoting allocative efficiency (Kay and Thompson 1986; Millward 1982; Wortzel and Wortzel 1989). Borcherding, Pommerehne, and Schneider (1982 p. 136) state that “given sufficient competition between public and private producers, the differences in unit costs turn out to be insignificant.” On the other hand, a number of studies find that government shareholders are more likely to expropriate firm wealth, thus advocating the privatization of public enterprises to enhance firm performance (Bailey 1986; Bishop and Kay 1989; Kikeri, Nellis, and Shirley 1994). However, some studies argue that good corporate governance practices in public enterprises may lead to no inferior efficiency relative to private enterprises (e.g. Sun, Tong, and Tong 2003). The objective of this study is to investigate the association between product market competition (PMC) and firm performance and how state-ownership and corporate governance practices affect firm performance when operating in markets with higher PMC. Hence, the study posits four research questions: (1) Does PMC affect firm performance? (2) Do corporate governance practices affect firm performance when operating in markets with higher PMC? (3) Does the association between PMC and firm performance for firms controlled by state-ownership differ from firms controlled by non-state-ownership? and (4) Does the effect of state-ownership on the association between PMC and firm performance differ for firms with good corporate governance practices from firms without good corporate governance practices?