Product Market Competition and Agency Costs - ARCHIVED

Articles and reports: 11F0019M2006287


We model the effects of product market competition on agency costs, and develop two main empirical predictions. First, competition, by reducing agency costs, unambiguously increases the importance firms place on quality improvements. This leads to higher powered incentives, and in turn to increased effort and quality. Second, these effects are increasing in the severity of agency problems, and should be stronger in large, hierarchical corporations (where agency problems are more severe) than in entrepreneurial firms. We test the predictions of our model using a unique dataset with both firm and employee characteristics.

Issue Number: 2006287
Author(s): Baggs, Jennifer; de Bettignies, Jean-Etienne
FormatRelease dateMore information
PDFDecember 4, 2006