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The Relationship Between Competition and the Fraction of Firms Using Stock-Based Compensation in an Industry

Author

Listed:
  • Hsing-Hua Huang

    (Department of Information Management and Finance, National Chiao Tung University, No. 1001 University Road, Hsinchu City 300, Taiwan)

  • Chia-Fan Lin

    (Banking Bureau, Financial Supervisory Commission, 7th Floor, No. 7, Sec. 2, Xianmin Blvd., Banqiao Dist., New Taipei City 220, Taiwan)

Abstract

This paper theoretically and empirically investigates the relationship between the intensity of product market competition and the fraction of firms that use stock-based compensation in an industry. By employing the relationship between a firm's risk-taking behavior and the use of stock-based compensation, we theoretically show that when the fraction of firms using stock-based compensation is less (more) than one-half, there is a positive (negative) relationship between the fraction and the intensity of product market competition and further provide some supportive empirical evidence. Our results imply that there is more heterogeneity in firms' stock-based compensation policies in the more competitive industry.

Suggested Citation

  • Hsing-Hua Huang & Chia-Fan Lin, 2014. "The Relationship Between Competition and the Fraction of Firms Using Stock-Based Compensation in an Industry," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 17(01), pages 1-18.
    • Handle: RePEc:wsi:rpbfmp:v:17:y:2014:i:01:n:s0219091514500064
    DOI: 10.1142/S0219091514500064
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    References listed on IDEAS

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    1. Dalida Kadyrzhanova & Antonio Falato, 2008. "Optimal CEO Incentives and Industry Dynamics," 2008 Meeting Papers 880, Society for Economic Dynamics.
    2. Gormley, Todd A. & Matsa, David A. & Milbourn, Todd, 2013. "CEO compensation and corporate risk: Evidence from a natural experiment," Journal of Accounting and Economics, Elsevier, vol. 56(2), pages 79-101.
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    Cited by:

    1. Jing Wang & Wei Li & Arno Forst, 2021. "Product market competition, stock price informativeness, and IFRS adoption: evidence from Europe," Review of Quantitative Finance and Accounting, Springer, vol. 56(4), pages 1537-1559, May.

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    More about this item

    Keywords

    Stock-based compensation; product market competition; industry equilibrium;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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