Industry product market competition and managerial incentives

While some studies suggest that industry product market competition can substitute for managerial incentives. other studies suggest a complementary relation. The underlying assumption behind these studies is that competition can be uni-dimensionally proxied for by industry concentration. However, recent studies suggest that competition can reflect several dimensions: product substitutability, market size, and entry costs, given the level of industry concentration. Using these determinants of competition, this study contributes to the literature by showing that (a) firms provide stronger incentives when industry competition is greater, (b) competition is multi-dimensional in its relation to incentives; and (c) industry characteristics play a major role in influencing incentives. (c) 2007 Elsevier B.V. All rights reserved.