Foreign Competition and Executive Compensation in the Manufacturing Industry: A Comparison between Germany and the U.S.

32 Pages Posted: 20 Aug 2018

See all articles by Katharina Dyballa

Katharina Dyballa

Technical University of Dortmund

Kornelius Kraft

University of Dortmund - Department of Economics; IZA Institute of Labor Economics

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Abstract

In this study we use import penetration as a proxy for foreign competition in order to empirically analyze (1) the impact of foreign competition on managerial compensation, (2) differences in the impact between Germany and the U.S. and (3) whether the impact of import penetration is driven by implied efficiency effects. We use data from the manufacturing industry covering the period from 1984-2010 for Germany respectively 1992-2011 for the U.S. and apply system GMM in order to solve potential endogeneity problems. It turns out that foreign competition leads to an increase of average per capita executive compensation in both countries. The impact of foreign competition on pay-performance sensitivity differs between the U.S. and Germany. A differentiation between imported intermediates (efficient sourcing strategy) and final inputs (competition) reveals that the impact of import penetration is not biased by efficiency effects.

Keywords: foreign competition, outsourcing, managerial incentives, international comparison, System GMM

JEL Classification: F16, F14, G30, J33

Suggested Citation

Dyballa, Katharina and Kraft, Kornelius, Foreign Competition and Executive Compensation in the Manufacturing Industry: A Comparison between Germany and the U.S.. IZA Discussion Paper No. 11713, Available at SSRN: https://ssrn.com/abstract=3234236

Katharina Dyballa (Contact Author)

Technical University of Dortmund ( email )

Emil-Figge-Straße 50
Dortmund, 44227
Germany

Kornelius Kraft

University of Dortmund - Department of Economics ( email )

D-44221 Dortmund
Germany
+49 231 755-3152 (Phone)
+49 231 755-3155 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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