Download This PaperCompetition and Executive Compensation: Evidence from Pharmaceutical Breakthrough Designations
38 Pages Posted: 14 Dec 2022 Last revised: 10 Jun 2023
Date Written: November 18, 2022
Abstract
We study the effects of competition shocks on executive compensation. Breakthrough Therapy
Designations (BTDs) instrument shocks to the product market position of BTD-recipients’ rivals.
Rivals respond by increasing option-based compensation for CEOs and other executives. They
also subsequently escalate developments of new drugs. Our results corroborate theoretical models
wherein (i) firms facing competitive pressures optimally intensify innovation, and (ii) stock
options encourage executives to undertake such innovation.
Keywords: Competition, Executive Compensation, Innovation
Suggested Citation: Suggested Citation
Garfinkel, Jon A. and Hammoudeh, Mosab and Irlbeck, Steven and Lie, Erik, Competition and Executive Compensation: Evidence from Pharmaceutical Breakthrough Designations (November 18, 2022). Available at SSRN: https://ssrn.com/abstract=4281959 or http://dx.doi.org/10.2139/ssrn.4281959
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