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How does product market competition shape incentive contracts?

  • Vicente Cuñat
  • Maria Guadalupe

This paper studies the effect of product market competition on the explicit compensation packages that firms offer to their CEOs, executives and workers. We use a large sample of both traded and non-traded UK firms and exploit a quasi-natural experiment associated to an increase in competition. The sudden appreciation of the pound in 1996 implied different changes in competition for sectors with different degrees of openness. Our difference in differences estimates show that a higher level of product market competition increases the performance pay sensitivity of compensation schemes, in particular for executives.

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File URL: http://eprints.lse.ac.uk/19894/
File Function: Open access version.
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 19894.

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Length: 37 pages
Date of creation: May 2005
Date of revision:
Handle: RePEc:ehl:lserod:19894
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