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Managerial diversion, product market competition, and firm performance

Guangzhong Li and Jie Li

China Economic Review, 2018, vol. 50, issue C, 240-264

Abstract: We derive the conditions under which a manager will divert and how managerial diversion affects product market performance and firm profits. Our model predicts that managerial diversion is more likely to occur and leads to more aggressive product market behavior in a firm with weak incentives and corporate governance. In these firms, the relation between managerial diversion and firm profits is inverse U-shaped. Chinese state-owned manufacturing firms are used to test our theoretical model, and we find supportive evidence.

Keywords: Executive compensation; Managerial diversion; Product market behavior; State-owned enterprises; China (search for similar items in EconPapers)
JEL-codes: J33 G30 (search for similar items in EconPapers)
Date: 2018
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China Economic Review is currently edited by B.M. Fleisher, K. X. D. Huang, M.E. Lovely, Y. Wen, X. Zhang and X. Zhu

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