Product Market Competition and Agency Costs

35 Pages Posted: 26 Jul 2007

See all articles by Jen Baggs

Jen Baggs

University of Victoria - Faculty of Business

Jean-Etienne de Bettignies

Queen's University - Smith School of Business

Abstract

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.

Suggested Citation

Baggs, Jen and de Bettignies, Jean-Etienne, Product Market Competition and Agency Costs. Journal of Industrial Economics, Vol. 55, No. 2, pp. 289-323, June 2007, Available at SSRN: https://ssrn.com/abstract=1003039 or http://dx.doi.org/10.1111/j.1467-6451.2007.00312.x

Jen Baggs (Contact Author)

University of Victoria - Faculty of Business ( email )

Victoria, British Columbia
Canada

Jean-Etienne De Bettignies

Queen's University - Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

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