PT  - JOURNAL ARTICLE
AU  - Fernandes, Ana P.
AU  - Ferreira, Priscila
AU  - Winters, L. Alan
TI  - The Effect of Competition on Executive Compensation and Incentives: Evidence from a Quasi-natural Experiment
AID  - 10.3368/jhr.53.3.0215-6963R1
DP  - 2017 Apr 19
TA  - Journal of Human Resources
PG  - 0215-6963R1
4099  - http://jhr.uwpress.org/content/early/2017/04/18/jhr.53.3.0215-6963R1.short
4100  - http://jhr.uwpress.org/content/early/2017/04/18/jhr.53.3.0215-6963R1.full
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.