Globalization and the Provision of Incentives inside the Firm: The Effect of Foreign Competition

By V. Cuñat, Maria Guadalupe. Journal of Labor Economics, 2009

267 citations recorded by the source corpus.

This article studies the effect of changes in foreign competition on the structure of compensation and incentives of U.S. executives. We find that import penetration (instrumented with exchange rates and tariffs) leads to more incentive provision in a variety of ways. First, it increases the sensitivity of pay to performance. Second, it increases within‐firm pay differentials between executive levels, with CEOs typically experiencing the largest wage increases. Finally, higher foreign competition is also associated with a higher demand for talent. These results suggest that increased foreign competition can explain some of the recent trends in compensation structures.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/a3ddf7e87b095e5ab18e5569cde0c69f67817c31

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Citations in the corpus

The dark side of CEO ability: CEO general managerial skills and cost of equity capital☆ (2014, unknown): “9 In our main tests, we follow more recent literature and estimate rpIM using estimates from three models (rpCT, rpES, rpGLS), whereas the traditional implied cost of equity studies, such as those by Dhaliwal et al. (2006), Hail and Leuz (2006), and Boubakri et al.”
Are US Industries Becoming More Concentrated?* (2019, unknown): “This is one of the most common measures, and has been used in several studies (e.g., Katics and Petersen, 1994; Borjas and Ramey, 1995; Cuñat and Guadalupe, 2009; Irvine and Pontiff, 2009; Autor, Dorn and Hanson, 2013; Acemoglu et al., 2016).”
Bonus Culture: Competitive Pay, Screening, and Multitasking (2016, background): “Dyck et al. (2013) infer the prevalence of corporate fraud by exploiting the fact that, subsequent to the demise of Arthur Andersen in 2001, firms that had used their services were forced to bring in new auditors, who systematically “cleaned house”where problems had remained hidden. The average publ”
The spillover effects of MD&A disclosures for real investment: The role of industry competition (2019, background): “Empirical studies suggest that firms provide stronger explicit compensation-based incentives to managers when competition is more intense (e.g., entry costs are lower) (Karuna, 2007; Cu~nat and Guadalupe, 2009).”
Common Ownership, Competition, and Top Management Incentives (2016, background): “Hart 1983; Vickers 1985; Fershtman and Judd 1987; Sklivas 1987) and empirical work (including Kedia 1998; Aggarwal and Samwick 1999; Joh 1999; Cuñat and Guadalupe 2005, 2009) that examines the relationship between product market competition and managerial incentives.”
Generalists versus specialists: Lifetime work experience and chief executive officer pay (2013, background): “The increased importance of general skills could result from product market changes due to industry deregulation (Hubbard and Palia, 1995; and Cunat and Guadalupe, 2009a) or from foreign competition (Cunat and Guadalupe, 2009b).”