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How Does Product Market Competition Shape Incentive Contracts?

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Author Info
Vicente Cuñat (Universitat Pompeu Fabra)
Maria Guadalupe (Columbia University and CEPR)

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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 nontraded 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. (JEL: J33, L20, G34) Copyright (c) 2005 by the European Economic Association.

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Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 3 (2005)
Issue (Month): 5 (09)
Pages: 1058-1082
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Handle: RePEc:tpr:jeurec:v:3:y:2005:i:5:p:1058-1082

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. María Guadalupe, 2005. "Product Market Competition Returns to Skill and Wage Inequality," CEP Discussion Papers dp0686, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
  2. Cuñat, Vicente & Guadalupe, Maria, 2006. "Globalization and the Provision of Incentives Inside the Firm," CEPR Discussion Papers 5950, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  3. Arantxa Jarque, 2008. "CEO compensation : trends, market changes, and regulation," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 265-300. [Downloadable!]
  4. Giroud, Xavier & Mueller, Holger M, 2007. "Does Corporate Governance Matter in Competitive Industries?," CEPR Discussion Papers 6446, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Vives, Xavier, 2006. "Innovation and competitive pressure," IESE Research Papers D/634, IESE Business School.
    Other versions:
  6. Sonja Fagernäs, 2006. "How do family ties, boards and regulation affect pay at the top? Evidence for Indian CEOs," ESRC Centre for Business Research - Working Papers wp335, ESRC Centre for Business Research. [Downloadable!]
  7. Andersson, Fredrik, 2009. "A Trickle-Down Theory of Incentives with Applications to Privatization and Outsourcing," Working Paper Series 784, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
  8. Baggs, Jennifer & de Bettignies, Jean-Etienne, 2006. "Product Market Competition and Agency Costs," Analytical Studies Branch Research Paper Series 2006287e, Statistics Canada, Analytical Studies Branch. [Downloadable!]
  9. Francesco Nucci & Marianna Riggi, . "The Great Moderation and Changes in the Structure of Labor Compensation," Working Papers 124, Sapienza University of Rome, Department of Public Economics. [Downloadable!]
  10. N. Lacetera & L. Zirulia, 2008. "Knowledge Spillovers, Competition, and R&D Incentive Contracts," Working Papers 624, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
  11. Benoit Dostie & Rajshri Jayaraman, 2009. "The Effect of Adversity on Process Innovations and Managerial Incentives," Cahiers de recherche 0923, CIRPEE. [Downloadable!]
  12. Marcello D'Amato & Riccardo Martina & Salvatore Piccolo, 2005. "Endogenous Managerial Contract," CSEF Working Papers 148, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Jul 2006. [Downloadable!]
  13. Vicente Cuñat & Maria Guadalupe, 2009. "Globalization and the Provision of Incentives inside the Firm: The Effect of Foreign Competition," Economics Working Papers 1134, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
  14. Christian Bayer & Carsten Burhop, 2008. "Corporate Governance and Incentive Contracts: Historical Evidence from a Legal Reform," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_11, Max Planck Institute for Research on Collective Goods. [Downloadable!]
    Other versions:
  15. Erling Barth & Bernt Bratsberg & Torbjørn Hægeland & Oddbjørn Raaum, 2006. "Who Pays for Performance?," IZA Discussion Papers 2142, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  16. Baggs, Jennifer & de Bettignies, Jean-Etienne, 2006. "Concurrence sur le marché des produits et coûts de délégation," Direction des études analytiques : documents de recherche 2006287f, Statistics Canada, Direction des études analytiques. [Downloadable!]
  17. Benoit Dostie & Rajshri Jayaraman, 2009. "The Effect of Adversity on Process Innovations and Managerial Incentives," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  18. Bernd Theilen, 2008. "Market Competition and Lower Tier Incentives," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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