Motivating Collusion

UNIVERSITY OF TECHNOLOGY SYDNEY
Finance Department
Research Seminars in Finance

Topic: Motivating Collusion

Speaker: Alminas Žaldokas, Hong Kong University of Science and Technology

Abstract: We argue that executive compensation contracts can motivate product market collusion. We study two contract features: the use of relative performance benchmarking and the length of executive horizon. Relative performance evaluation is typically used to provide incentives for executives to outperform industry rivals but firms might strategically choose which rivals to consider. Meanwhile, decision makers with shorter horizons might deviate from collusive arrangements, making them unstable. We test this for U.S. firms over 2008-2017. Our identification comes from the 2013 decision to close the regional offices of the Department of Justice, which oversees antitrust en- forcement. We find that firms located nearby the closed regional offices changed their executive compensation contracts by reducing the relative performance evaluation and extending their horizons. In particular, the affected firms reduced the propensity of relative performance evaluation scheme; reduced the compensation sensitivity to rival peer performance; and increased the fraction of equity compensation component in total compensation. 

Date: Wednesday, 9 October 2019
Time: 2.00 – 3.00 p.m.
Venue: University of Technology, Sydney
               Building 8, Room 08.002, Dr Chau Chak Wing Building
               Dr Chau Chak Wing Building
              14 - 28 Ultimo Road, Ultimo

Co-ordinator: Claire Liu  (Ph: +61 2 9514 7748)

Enquiries: Mala Kapahi (Ph: +61 2 9514 7777)