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Product Market Competition, Managerial Inventives, and Firm Valuation

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  • Stefan Beiner
  • Markus Schmid
  • Gabrielle Wanzenried

Abstract

Our paper is a further contribution to the still very small empirical literature on the effects of competition on managerial incentive schemes. Based on a theoretical model that incorporates both strategic interaction between firms and a principal agent relationship, we investigate the relationships between product market competition, incentive schemes and firm valuation in a multivariate OLS framework. To take into account a possible endogeneity of the incentives provided to managers and Tobin's Q, our measure of firm value, we additionally employ a simultaneous equations framework. The sample comprises 156 Swiss firms for the year 2002, and the compensation data refer to the firms' top management and the board of directors in total. Our results suggest that more intensive product market competition is associated with stronger incentive schemes for managers and a lower firm value

Suggested Citation

  • Stefan Beiner & Markus Schmid & Gabrielle Wanzenried, 2004. "Product Market Competition, Managerial Inventives, and Firm Valuation," Diskussionsschriften dp0412, Universitaet Bern, Departement Volkswirtschaft.
    • Handle: RePEc:ube:dpvwib:dp0412
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    Keywords

    Product Market Competition; Managerial Incentives; Firm Valuation; Simultaneous Equations System;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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