PT  - JOURNAL ARTICLE
AU  - Ana P. Fernandes
AU  - Priscila Ferreira
AU  - L. Alan Winters
TI  - The Effect of Competition on Executive Compensation and Incentives
AID  - 10.3368/jhr.53.3.0215-6963R1
DP  - 2018 Jul 01
TA  - Journal of Human Resources
PG  - 783--824
VI  - 53
IP  - 3
4099  - http://jhr.uwpress.org/content/53/3/783.short
4100  - http://jhr.uwpress.org/content/53/3/783.full
SO  - J Hum Resour2018 Jul 01; 53
AB  - 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.