The effect of competition on executive compensation and incentives: evidence from a quasi-natural experiment

Fernandes, Anna P, Perreira, Priscila and Winters, L Alan (2017) The effect of competition on executive compensation and incentives: evidence from a quasi-natural experiment. Journal of Human Resources. ISSN 0022-166X

[img] PDF - Accepted Version
Restricted to SRO admin only

Download (310kB)

Abstract

This paper studies the effect of increased product market competition on executive compensation and incentives. We use a reform that simplified firm entry regulation in Portugal as a quasi-natural experiment, and exploit its staggered implementation across municipalities for identification. Using employer-employee data, we find that increased competition following the reform raised total pay but reduced the sensitivity of pay to firm performance. This is consistent with theoretical results showing that a fall in entry costs weakens managerial incentive provision. Entry deregulation also increased performance induced CEO turnover and firms’ probability of exit, suggesting that competition provides direct incentives for managerial effort.

Item Type: Article
Schools and Departments: School of Business, Management and Economics > Economics
Subjects: H Social Sciences
Depositing User: Joy Blake
Date Deposited: 02 Mar 2018 10:17
Last Modified: 23 Mar 2018 16:37
URI: http://sro.sussex.ac.uk/id/eprint/74160

View download statistics for this item

📧 Request an update