While some studies suggest that industry product market competition can substitute for managerial
incentives, other studies suggest a complementary relation. The underlying assumption behind these
studies is that competition can be uni-dimensionally proxied for by industry concentration. However,
recent studies suggest that competition can reflect several dimensions: product substitutability, market
size, and entry costs, given the level of industry concentration. Using these determinants of
competition, this study contributes to the literature by showing that (a) firms provide stronger
incentives when industry competition is greater, (b) competition is multi-dimensional in its relation to
incentives; and (c) industry characteristics play a major role in influencing incentives.
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