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The effect of competition on executive compensation and incentives: evidence from a quasi-natural experiment
journal contribution
posted on 2023-06-09, 12:20 authored by Anna P Fernandes, Priscila Perreira, L. Alan WintersL. Alan WintersThis 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.
History
Publication status
- Published
File Version
- Accepted version
Journal
Journal of Human ResourcesISSN
0022-166XPublisher
University of Wisconsin PressExternal DOI
Issue
3Volume
53Page range
783-824Department affiliated with
- Economics Publications
Full text available
- No
Peer reviewed?
- Yes
Legacy Posted Date
2018-03-02First Compliant Deposit (FCD) Date
2018-03-02Usage metrics
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