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Does firm heterogeneity lead to differences in relative executive compensation?

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  • Albuquerque, Ana

Abstract

Cost heterogeneity is an important source of performance disparity among firms. This heterogeneity conditions the strategic decisions that firms make in the product market and can lead to heterogeneity in the design of managerial compensation contracts. I investigate the effect of cost heterogeneity in a strategic product market environment where firms compete à la Cournot. The paper offers new predictions on how executive compensation contracts that account for relative performance must be adjusted for cost differences.

Suggested Citation

  • Albuquerque, Ana, 2010. "Does firm heterogeneity lead to differences in relative executive compensation?," Finance Research Letters, Elsevier, vol. 7(2), pages 80-85, June.
  • Handle: RePEc:eee:finlet:v:7:y:2010:i:2:p:80-85
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    References listed on IDEAS

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    1. Albuquerque, Ana, 2009. "Peer firms in relative performance evaluation," Journal of Accounting and Economics, Elsevier, vol. 48(1), pages 69-89, October.
    2. Fumas, Vicente Salas, 1992. "Relative performance evaluation of management : The effects on industrial competition and risk sharing," International Journal of Industrial Organization, Elsevier, vol. 10(3), pages 473-489, September.
    3. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1181-1222, December.
    4. Rajesh K. Aggarwal & Andrew A. Samwick, 1999. "Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence," Journal of Finance, American Finance Association, vol. 54(6), pages 1999-2043, December.
    5. Mark Doms & Eric J. Bartelsman, 2000. "Understanding Productivity: Lessons from Longitudinal Microdata," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 569-594, September.
    6. Hermalin, Benjamin E. & Wallace, Nancy E., 2001. "Firm performance and executive compensation in the savings and loan industry," Journal of Financial Economics, Elsevier, vol. 61(1), pages 139-170, July.
    7. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    8. Murphy, Kevin J., 1999. "Executive compensation," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 38, pages 2485-2563 Elsevier.
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