VGSF - WU Vienna - LC

Toni Whited, University of Michigan, Ross School of Business

online via Zoom 17:30 - 18:45

Organizer VGSF

As part of the ser­ies of the "Fin­ance Re­search Sem­inar", VGSF wel­comes Toni Whited from the Uni­versity of Michigan, Ross School of Busi­ness to present her re­search pa­per.
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Re­l­at­ive Per­form­ance Evalu­ation and Stra­tegic Com­pet­i­tion

We ex­am­ine how re­l­at­ive per­form­ance evalu­ation (RPE) af­fects in­dustry com­pet­i­tion—a ques­tion rel­ev­ant for cor­por­ate boards in­ter­ested in in­centiv­iz­ing ex­ec­ut­ives. Us­ing U.S. air­line data, we es­tim­ate a dy­namic game of com­pet­i­tion with het­ero­gen­ous firms in an oli­go­pol­istic mar­ket with RPE con­tracts. RPE nat­ur­ally makes CEO com­pens­a­tion less sens­it­ive to mar­ket de­mand. However, be­cause RPE amp­li­fies a firm’s cost ef­fi­ciency re­l­at­ive to its peers, RPE does not al­ways in­duce ag­gress­ive pro­duct mar­ket com­pet­i­tion, often weak­en­ing com­pet­i­tion from inef­fi­cient firms. While RPE in­duces en­do­gen­ous se­lec­tion of ef­fi­cient firms into large, high entry-­cost mar­kets, and vice versa, RPE has little ef­fect in un­com­pet­it­ive mar­kets.

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