Document Type

Honors Project - Open Access

Abstract

This paper examines the relationship between the degree of product market competition and the level of executive compensation for the largest 216 publically traded companies in U.S. manufacturing. Using 2005 CapitalIQ and Census data this paper finds that firm size has a substantial positive effect on the CEO’s total and annual cash compensation. These results also indicate that holding firm size as well as other measures constant, the degree of industry competition these firms face plays a small, but interesting role. Consistent with the hypothesis based on the literature, industry concentration has a parabolic relationship with compensation such that boards offer the lowest compensation in oligopolistic markets. This result may be due to an increased ability of boards and shareholders to monitor CEOs at intermediate levels of competition.

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