Stock-Related Compensation and Product-Market Competition

Giancarlo Spagnolo

No 1999.35, Working Papers from Fondazione Eni Enrico Mattei

Abstract: This paper shows that as long as the stock market has perfect foresight, some dividends are distributed, and incentives are paid more than once or are deferred, stock-related compensation packages are strong incentives for managers to support tacit collusive agreements in repeated oligopolies. The stock market anticipates the losses from punishment phases and discounts them on stock prices, reducing managers' short-run gains from any deviation. When deferred, stock-related incentives may remove all managers' short-run gains from deviation making collusion supportable at any discount factor. The results hold with managerial contracts of any length.

Keywords: CEO Compensation; Delegation; Collusion; Oligopoly; Managerial incentives; Ownership and control; Corporate governance (search for similar items in EconPapers)
JEL-codes: D43 G30 J33 L13 L21 (search for similar items in EconPapers)
Date: 1999-03
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Journal Article: Stock-Related Compensation and Product-Market Competition (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:1999.35

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