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The Causality between Salary Structures and Team Performance: A Panel Analysis in a Professional Baseball League

Author

Listed:
  • Wen-Jhan Jane

    (Shih Hsin University, Taiwan)

  • Gee San

    (National Central University, Taiwan)

  • Yi-Pey Ou

    (National Central University, Taiwan)

Abstract

This paper provides a comprehensive study of the causality between pay and performance for professional sports teams. By using the total salary payment, as well as the dispersion of salary payment of the baseball teams in Taiwan, we engage in a simultaneous regression of a Granger Causality Test for each team’s salary structures and their corresponding performance. Our empirical results show that the causality only runs from the dispersion of salary payment to team performance, and not vice versa. As such, both the tournament hypothesis, which emphasizes the effect of salary dispersion, and the Yankee paradox, which proposes the negative externality for a team with high payroll, are thus confirmed. The one-way causality results suggest that teams must rely more on internal wage adjustments, especially on the dispersion of salary, under the league with strict restrictions on the mobility of players.

Suggested Citation

  • Wen-Jhan Jane & Gee San & Yi-Pey Ou, 2009. "The Causality between Salary Structures and Team Performance: A Panel Analysis in a Professional Baseball League," International Journal of Sport Finance, Fitness Information Technology, vol. 4(2), pages 136-150, May.
    • Handle: RePEc:jsf:intjsf:v:4:y:2009:i:2:p:136-150
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    More about this item

    Keywords

    Equity Theory; panel Granger Causality test; salary regulation; Tournament Theory; Yankee Paradox;
    All these keywords.

    JEL classification:

    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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