Product Market Competition and Agency Costs
AbstractWe model the effects of product market competition on agency costs, and develop two main empirical predictions. First, competition, by reducing agency costs, unambiguously increases the importance firms place on quality improvements. This leads to higher powered incentives, and in turn to increased effort and quality. Second, these effects are increasing in the severity of agency problems, and should be stronger in large, hierarchical corporations (where agency problems are more severe) than in entrepreneurial firms. We test the predictions of our model using a unique dataset with both firm and employee characteristics.
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Bibliographic InfoPaper provided by Statistics Canada, Analytical Studies Branch in its series Analytical Studies Branch Research Paper Series with number 2006287e.
Date of creation: 04 Dec 2006
Date of revision:
Labour; Employment and unemployment; Wages; salaries and other earnings; Hours of work and work arrangements;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-14 (All new papers)
- NEP-BEC-2007-01-14 (Business Economics)
- NEP-COM-2007-01-14 (Industrial Competition)
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