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- Title
Competition, Managerial Slack, and Corporate Governance.
- Authors
Golan, Limor; Parlour, Christine A.; Rajan, Uday
- Abstract
We model the interaction between product market competition and internal governance at firms. Competition makes it more difficult to infer a manager’s action given the realized output, thus increasing the cost of inducing effort. An exogenous change in the incentive to shirk increases managerial slack. However, the effects on firm value are ambiguous; in particular, firm value can increase as slack increases. As a result, empirical tests that focus on changes in value may not capture changes in the level of slack. We also provide conditions under which increased competition leads all firms to switch from high to low effort.
- Subjects
ECONOMIC competition; CORPORATE governance; EXECUTIVES; EMPIRICAL research; FINANCIAL research
- Publication
Review of Corporate Finance Studies, 2015, Vol 4, Issue 1, p43
- ISSN
2046-9128
- Publication type
Article
- DOI
10.1093/rcfs/cfu011