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How does product market competition shape incentive contracts?

Cuñat, Vicente and Guadalupe, Maria (2005) How does product market competition shape incentive contracts? Journal of the European Economic Association, 3 (5). pp. 1058-1082. ISSN 1542-4774

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Abstract

This paper studies the effect of product market competition on the explicit compensation packages that firms offer to their CEOs, executives and workers. We use a large sample of both traded and nontraded UK firms and exploit a quasi-natural experiment associated to an increase in competition. The sudden appreciation of the pound in 1996 implied different changes in competition for sectors with different degrees of openness. Our difference in differences estimates show that a higher level of product market competition increases the performance pay sensitivity of compensation schemes, in particular for executives.

Item Type: Article
Official URL: http://www.wiley.com/bw/journal.asp?ref=1542-4766&...
Additional Information: © 2005 Wiley-Blackwell
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Journal of Economic Literature Classification System: G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J33 - Compensation Packages; Payment Methods
L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L20 - General
Sets: Research centres and groups > Managerial Economics and Strategy Group
Departments > Finance
Departments > Management
Collections > Economists Online
Research centres and groups > Financial Markets Group (FMG)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 10 Nov 2011 14:17
URL: http://eprints.lse.ac.uk/39413/

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