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PRODUCT MARKET COMPETITION AND AGENCY COSTS *
Author(s) -
BAGGS JEN,
DE BETTIGNIES JEANETIENNE
Publication year - 2007
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/j.1467-6451.2007.00312.x
Subject(s) - competition (biology) , agency (philosophy) , agency cost , incentive , industrial organization , business , product (mathematics) , product market , quality (philosophy) , market competition , microeconomics , economics , market economy , finance , ecology , corporate governance , philosophy , geometry , mathematics , epistemology , biology , shareholder
We model the effects of competition on managerial efficiency and isolate the agency effect of competition, present only in firms subject to agency costs, from the direct pressure effect of competition, which is present in all firms. Using a unique set of Canadian data that surveys both firms and their employees, we then evaluate the empirical significance of these two effects. We find that competition has a significant direct pressure effect as well as a significant agency effect. Both effects increase the importance firms place on quality improvements and cost reductions as well as on contractual incentives and employee effort.