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Product Market Competition And Agency Costs

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  • JEN BAGGS
  • JEAN‐ETIENNE DE BETTIGNIES

Abstract

We model the effects of competition on managerial efficiency and isolate the agency effect of competition, present only in firms subject to agency costs, from the direct pressure effect of competition, which is present in all firms. Using a unique set of Canadian data that surveys both firms and their employees, we then evaluate the empirical significance of these two effects. We find that competition has a significant direct pressure effect as well as a significant agency effect. Both effects increase the importance firms place on quality improvements and cost reductions as well as on contractual incentives and employee effort.

Suggested Citation

  • Jen Baggs & Jean‐Etienne De Bettignies, 2007. "Product Market Competition And Agency Costs," Journal of Industrial Economics, Wiley Blackwell, vol. 55(2), pages 289-323, June.
  • Handle: RePEc:bla:jindec:v:55:y:2007:i:2:p:289-323
    DOI: 10.1111/j.1467-6451.2007.00312.x
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    References listed on IDEAS

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    1. Caves, Richard E, 1980. "Industrial Organization, Corporate Strategy and Structure," Journal of Economic Literature, American Economic Association, vol. 18(1), pages 64-92, March.
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