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How Does Product Market Competition Shape Incentive Contracts?

Vicente Cuñat () and Maria Guadalupe ()

CEP Discussion Papers from Centre for Economic Performance, LSE

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 non-traded 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.

Keywords: Performance-related pay; Product market competition (search for similar items in EconPapers)
JEL-codes: J32 J33 J41 J49 M12 (search for similar items in EconPapers)
Date: 2005-05
New Economics Papers: this item is included in nep-bec and nep-com
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