RT Journal Article
SR Electronic
T1 The Effect of Competition on Executive Compensation and Incentives
JF Journal of Human Resources
JO J Hum Resour
FD University of Wisconsin Press
SP 783
OP 824
DO 10.3368/jhr.53.3.0215-6963R1
VO 53
IS 3
A1 Fernandes, Ana P.
A1 Ferreira, Priscila
A1 Winters, L. Alan
YR 2018
UL http://jhr.uwpress.org/content/53/3/783.abstract
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.