RT Journal Article
SR Electronic
T1 The Effect of Competition on Executive Compensation and Incentives: Evidence from a Quasi-natural Experiment
JF Journal of Human Resources
JO J Hum Resour
FD University of Wisconsin Press
SP 0215-6963R1
DO 10.3368/jhr.53.3.0215-6963R1
A1 Fernandes, Ana P.
A1 Ferreira, Priscila
A1 Winters, L. Alan
YR 2017
UL http://jhr.uwpress.org/content/early/2017/04/18/jhr.53.3.0215-6963R1.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.