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TitleThe effect of competition on executive compensation and incentives: Evidence from a quasi-natural experiment
Author(s)Fernandes, Ana P.
Ferreira, Priscila
Winters, L. Alan
KeywordsEntry Deregulation
Product Market Competition
Executive Compensation
Managerial Incentives
Performance-related Pay
Issue date2018
PublisherUniversity of Wisconsin Press
JournalJournal of Human Resources
Abstract(s)This paper studies the effect of increased product market competition on executive compensation and incentives. We use a reform that simplified firm entry regulation in Portugal as a quasi-natural experiment, and exploit its staggered implementation across municipalities for identification. Using employer-employee data, we find that increased competition following the reform raised total pay but reduced the sensitivity of pay to firm performance. This is consistent with theoretical results showing that a fall in entry costs weakens managerial incentive provision. Entry deregulation also increased performance-induced CEO turnover and firms’ probability of exit, suggesting that competition provides direct incentives for managerial effort.
AccessRestricted access (UMinho)
Appears in Collections:NIMA - Artigos/Papers

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