Page info: *Author:Mathiesen, H. *Document version:2.6. *Copyright 1997-2017, ViamInvest.Legal notice. 

 

Table: Hypotheses - Effects of product market competition on performance and other incentive mechanisms in corporate governance

 

Click here to see an exhibition on these issues and their relation to other hypotheses in corporate governance.

 

10) From competition in product markets to corporate performance

10A: Tough product market competition forces managers to focus on high financial performance because, if they do not, it would ultimately result in bankruptcy and the loss of their jobs (Scherer [1980, page 38] and Hart [1983]).

 

20) From competition in product markets to ownership structure

20A: Financial institutional owners that compete intensely in their own product markets (e.g., a pension fund competes on the market for life savings) may have stronger incentives to demand high financial performance on their own equity investments than a financial owner that do not have though competition in their own product markets.

 

17) From competition in product markets to incentive based compensation

17A: Yardstick competition argument: The presence of competitors in the product markets makes it possible to sharpen the incentive effect of the remuneration system by letting the remuneration correlate with performance relative to that of close competitors rather than letting it correlate with performance relative to that of the market. This is also called yardstick competition (Nalebuff and Stiglitz [1983], Shleifer [1985], and Hermalin [1992]).

 

30) From competition in product markets to performance monitoring system

30A: Yardstick competition argument: The less product-market competition, the harder it is to measure the performance of a firm because there are no close competitors with which to compare. This is called yardstick competition (Nalebuff and Stiglitz [1983], and Shleifer [1985]). Furthermore, it is difficult or impossible to access how much of a firmís profit that is caused by monopoly pricing. The latter need to be subtracted from profits in order to find the so-called social efficiency of the firm.

 

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