The Effect of Competition on Executive Compensation and Incentives: Evidence from a Quasi-natural Experiment

Ana Fernandes, Priscila Ferreira () and L. Winters

Journal of Human Resources, 2018, vol. 53, issue 3, 783-824

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.

JEL-codes: J31 J33 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.3368/jhr.53.3.0215-6963R1
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:uwp:jhriss:v:53:y:2018:i:3:p:783-824

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