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Winners and losers of corporate tournaments

Author

Listed:
  • Ian Gregory- Smith

    (Department of Economics, University of Sheffield)

  • Peter Wright

    (Department of Economics, University of Sheffield)

Abstract

In a corporate tournament, executive directors are motivated by the prospect of promotion to CEO, with winners receiving large increases in remuneration. Tournament losers by contrast face a discrete loss in their valuation of their position, since the prospect of them becoming CEO is substantially reduced. We argue that this offers an opportunity to test the predictions of tournament theory by observing the quit behavior and the wages of the losing directors. We find a sharp increase in the likelihood that directors leave the firm. The directors who remain receive an increase in their remuneration following a rival’s promotion.

Suggested Citation

  • Ian Gregory- Smith & Peter Wright, 2016. "Winners and losers of corporate tournaments," Working Papers 2016010, The University of Sheffield, Department of Economics.
    • Handle: RePEc:shf:wpaper:2016010
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    File URL: http://www.sheffield.ac.uk/economics/research/serps/articles/2016_010
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    References listed on IDEAS

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    Cited by:

    1. Eric W. Chan & Jeremy B. Lill & Victor S. Maas, 2023. "Promote Internally or Hire Externally? The Role of Gift Exchange and Performance Measurement Precision," Journal of Accounting Research, Wiley Blackwell, vol. 61(2), pages 493-530, May.
    2. Ian Gregory-Smith & Brian G. M. Main, 2016. "Testing the Participation Constraint in the Executive Labour Market," Scottish Journal of Political Economy, Scottish Economic Society, vol. 63(4), pages 399-426, September.
    3. Martin B. Schmidt, 2024. "On the Incentive Structure of Tournaments: Evidence from the National Basketball Association’s Draft Lottery," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 50(3), pages 400-429, June.

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    More about this item

    Keywords

    corporate succession; executive remuneration; tournament theory;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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