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Product Market Competition, Managerial Inventives, and Firm Valuation

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Author Info
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

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Paper provided by Universitaet Bern, Departement Volkswirtschaft in its series Diskussionsschriften with number dp0412.

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Date of creation: Jul 2004
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Handle: RePEc:ube:dpvwib:dp0412

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Related research
Keywords: Product Market Competition Managerial Incentives Firm Valuation Simultaneous Equations System

Find related papers by JEL classification:
C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect 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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  22. Sung Wook Joh, 1999. "Strategic Managerial Incentive Compensation In Japan: Relative Performance Evaluation And Product Market Collusion," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 303-313, May. [Downloadable!] (restricted)
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