<p>ABSTRACT:</p><p>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 employerâemployee 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 firmsâ probability of exit, suggesting that competition provides direct incentives for managerial effort.</p>
Journal of Human Resources – University of Wisconsin Press
Published: Jul 3, 2018
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