The effect of product -market competition on managerial incentives and managerial pay in compensation contracts.

I empirically examine the effect of product-market competition in an industry on incentives (defined as pay-performance sensitivities) and pay provided to managers by their firms who operate in this industry. Prior research is inconclusive on how competition affects managerial incentives and managerial pay. Much of the literature on competition is based on the assumption that market structure is exogenous. Consistent with recent developments in the literature, in this dissertation, I assume that market structure is endogenous. I study the effect of each of three determinants of competition---product substitutability, market size, and entry costs---on managerial incentives in the cross-section. By using these three measures of competition, I go back to product-market fundamentals and assess how structural aspects of the product-market competitive environment that firms operate in affect managerial incentives and pay. I test a random coefficients model allowing industry to be treated as a cluster of firms related by having common industry characteristics; here, I treat industry as a random effect. I find that more competitive industries provide stronger incentives but lower pay to their managers. This dissertation contributes to the academic literature by providing evidence on how competition affects managerial incentives and pay.PhDAccountingCommerce-BusinessFinanceManagementSocial SciencesUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/124448/2/3138191.pd