When in Rome: Local Social Norms and Tournament Incentives

33 Pages Posted: 27 Mar 2020

See all articles by Natasha Burns

Natasha Burns

University of Texas at San Antonio - Department of Finance

Kristina Minnick

Bentley University

Mia L. Rivolta

Xavier University

Date Written: March 2, 2020

Abstract

We investigate whether social capital influences the use and effectiveness of tournament structure of compensation. We find that pay differentials between the CEO and other executives, or tournament, are lower in U.S. counties with higher social capital. In addition, lower pay differentials are associated with better firm performance in regions with higher social capital. We use a variety of experiments which are shown to change social capital, such as legalization of medical and recreational use of marijuana or moving corporate headquarters. Our results remain robust. These findings suggest that social capital impact firms’ compensation setting decisions and firm performance.

Keywords: Social Capital, Executive Compensation, Tournament Theory

JEL Classification: G30, J31, M52

Suggested Citation

Burns, Natasha and Minnick, Kristina and Rivolta, Mia L., When in Rome: Local Social Norms and Tournament Incentives (March 2, 2020). Available at SSRN: https://ssrn.com/abstract=3547677 or http://dx.doi.org/10.2139/ssrn.3547677

Natasha Burns

University of Texas at San Antonio - Department of Finance ( email )

San Antonio, TX 78249
United States
210-458-6838 (Phone)

Kristina Minnick

Bentley University ( email )

175 Forest Street
Waltham, MA 02154
United States

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

Mia L. Rivolta (Contact Author)

Xavier University ( email )

3800 Victory Pkwy
Cincinnati, OH 45207
United States

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