Employee bargaining power, inter-firm competition, and equity-based compensation

Francesco Bova and Liyan Yang

Journal of Financial Economics, 2017, vol. 126, issue 2, 342-363

Abstract: We develop a model to illustrate that equity-based compensation for non-executive employees and product market decisions are related. When the product market is competitive and employees have low bargaining power, the unique equilibrium is for each firm’s owners to offer equity-based compensation to their employees. In this setting, equity-based compensation leads to a lower wage rate, which makes each firm more competitive with its rival. However, this unique equilibrium is a Prisoner’s Dilemma for the firms’ original owners. Our results are consistent with several empirical regularities and provide predictions on when firms will offer equity-based compensation to their employees.

Keywords: Employee bargaining power; Market competition; Equity compensation (search for similar items in EconPapers)
JEL-codes: G30 J33 J41 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X17301538
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:126:y:2017:i:2:p:342-363

DOI: 10.1016/j.jfineco.2017.07.006

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().