Market competition has expanded from the product dimension to the technological dimension. The exclusivity, cross product market boundaries, high risk nature, and long-term cycles associated with technology suggest that competition in the technological domain may differ significantly from that in the product domain. Can the pressure of technological competition serve as an external mechanism to improve corporate governance? To address this question, this study innovatively constructs a firm level indicator of technological competition pressure using patent texts from listed companies. It then examines the corporate governance effects of technological competition from the perspective of agency costs. Empirical analysis reveals that technological competition pressure significantly reduces agency costs. The underlying mechanisms through which technological competition exerts its governance effects include improvements in the information environment, constraints imposed by bankruptcy threats, and increased shareholder participation—especially among small and medium shareholders—in governance activities. Heterogeneity tests indicate that the governance effects of technological competition are more pronounced in nonstate owned enterprises, high-tech industries, and firms at growth stage and declinestage. Moreover, technological competition neither substitutes for nor complements product market competition but ultimately leads to significant improvements in total factor productivity. Therefore, technological competition serves as an external governance mechanism that enhances corporate governance standards and promotes high quality enterprise development. This study enriches the literature on the economic consequences of firm competition, particularly technological competition, and provides methodological references for future research in this area.