Product Market Competition and Agency Costs

36 Pages Posted: 15 Oct 2004

See all articles by Jen Baggs

Jen Baggs

Queen's School of Business

Jean-Etienne de Bettignies

Queen's University - Smith School of Business

Date Written: April 11, 2006

Abstract

We model the effects of product market competition on managerial efficiency, and isolate the agency effect of competition, which is present only in firms subject to agency costs, from the direct pressure effect, which is present in all firms. Using a unique set of Canadian data which allows us to simultaneously observe the characteristics of firms as well as their employees, we then evaluate the empirical significance for these two effects. We find that competition has both a significant direct pressure effect, as well as a significant agency effect. Both effects increase the importance firms place on quality improvements and on cost reductions, as well as contractual incentives and employee effort.

Keywords: competition, incentives, agency costs, entrepreneurial firms vs. large corporations

JEL Classification: L13, L15, M52

Suggested Citation

Baggs, Jennifer and de Bettignies, Jean-Etienne, Product Market Competition and Agency Costs (April 11, 2006). Sauder School of Business Working Paper, Available at SSRN: https://ssrn.com/abstract=604821 or http://dx.doi.org/10.2139/ssrn.604821

Jennifer Baggs

Queen's School of Business ( email )

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

Jean-Etienne De Bettignies (Contact Author)

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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