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

University of Toronto - Rotman School of Management; University of Toronto at Scarborough - Division of Management

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)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

University of Toronto at Scarborough - Division of Management

1265 Military Trial
Scarborough, Ontario M1C 1A4
Canada

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
486
Abstract Views
2,895
Rank
110,986
PlumX Metrics