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The effect of competition on executive compensation and incentives: evidence from a quasi-natural experiment

journal contribution
posted on 2023-06-09, 12:20 authored by Anna P Fernandes, Priscila Perreira, L. Alan WintersL. Alan Winters
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.

History

Publication status

  • Published

File Version

  • Accepted version

Journal

Journal of Human Resources

ISSN

0022-166X

Publisher

University of Wisconsin Press

Issue

3

Volume

53

Page range

783-824

Department affiliated with

  • Economics Publications

Full text available

  • No

Peer reviewed?

  • Yes

Legacy Posted Date

2018-03-02

First Compliant Deposit (FCD) Date

2018-03-02

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