Competition and Executive Compensation: Evidence from Pharmaceutical Breakthrough Designations

38 Pages Posted: 14 Dec 2022 Last revised: 20 Jul 2023

See all articles by Jon A. Garfinkel

Jon A. Garfinkel

University of Iowa - Tippie College of Business

Mosab Hammoudeh

University of New Orleans

Steven Irlbeck

University of New Hampshire

Erik Lie

University of Iowa - Henry B. Tippie College of Business

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

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

Jon A. Garfinkel

University of Iowa - Tippie College of Business ( email )

108 PBB
Iowa City, IA 52242-1000
United States
319-335-0943 (Phone)
319-335-3690 (Fax)

HOME PAGE: http://www.biz.uiowa.edu/faculty/jgarfinkel

Mosab Hammoudeh (Contact Author)

University of New Orleans ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States
2198809523 (Phone)

Steven Irlbeck

University of New Hampshire ( email )

Durham, NH 03824
United States

Erik Lie

University of Iowa - Henry B. Tippie College of Business ( email )

Acquisitions
5020 Main Library
Iowa City, IA 52242-1000
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
89
Abstract Views
441
Rank
520,775
PlumX Metrics