Executive Compensation and Competition in the Banking and Financial Sectors

Journal of Banking and Finance, Vol. 33, pp. 439-474, 2009

34 Pages Posted: 30 Jul 2013

See all articles by Maria Guadalupe

Maria Guadalupe

INSEAD - Economics and Political Sciences; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Vicente Cuñat

London School of Economics & Political Science (LSE) - Financial Markets Group

Date Written: 2009

Abstract

This paper studies the effect of product market competition on the compensation packages that firms offer to their executives and in particular its impact on the sensitivity of pay to performance. To measure the effect of competition we use two different identification strategies on a panel of US executives. We exploit two deregulation episodes in the banking and financial sectors as quasi-natural experiments. We provide difference-in-differences estimates of the effect of competition on estimated performance-pay sensitivities and on the sensitivity of stock option grants. Our results indicate that a higher level of product market competition increases the performance pay sensitivity of executive compensation schemes.

Suggested Citation

Guadalupe, Maria and Cuñat, Vicente, Executive Compensation and Competition in the Banking and Financial Sectors (2009). Journal of Banking and Finance, Vol. 33, pp. 439-474, 2009 . Available at SSRN: https://ssrn.com/abstract=1947002

Maria Guadalupe (Contact Author)

INSEAD - Economics and Political Sciences ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Vicente Cuñat

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

HOME PAGE: http://www.vicentecunat.com

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