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Executive Compensation and Competition in the Banking and Financial Sectors

  • Cuñat, Vicente

    ()

    (London School of Economics)

  • Guadalupe, Maria

    ()

    (INSEAD)

This paper studies the effect of product market competition on the compensation packages that firms offer to their executives and in particular its impact on the sensitivity of pay to performance. To measure the effect of competition we use two different identification strategies on a panel of US executives. We exploit two deregulation episodes in the banking and financial sectors as quasi-natural experiments. We provide difference in differences estimates of the effect of competition on estimated performance-pay sensitivities and on the sensitivity of stock option grants. Our results indicate that a higher level of product market competition increases the performance pay sensitivity of executive compensation schemes.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1123.

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Length: 36 pages
Date of creation: Apr 2004
Date of revision:
Publication status: published in: Journal of Banking and Finance, 2009, 33 (3), 495-504
Handle: RePEc:iza:izadps:dp1123
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