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Drawing on tournament theory, we argue that when environmental goals are incorporated into the cadre evaluation system, compared to officials who are close to retirement (i.e., retiring officials), non-retiring officials may exert more effort to foster risky green innovation. Based on a sample of publicly traded firms from heavily polluting industries in China between 2008 and 2016, we hypothesize and find that confronted with severe environmental pollution, firms in provinces with non-retiring governors have higher green innovation performance than those in provinces with retiring governors. Moreover, we find that this effect is stronger for firms in provinces whose governors have higher promotion anticipation, for local state-owned enterprises (SOEs), and for politically connected firms. Our study identifies the political incentives of government officials as an important antecedent of corporate green innovation and highlights the value of establishing a "green" cadre evaluation system to promote sustainable development. [ABSTRACT FROM AUTHOR]

The objective of this research is to examine whether and how enterprises adjust their corporate social responsibility (CSR) activities in response to top executives' local tournament incentives. The findings provide evidence to support the claim that local compensation gaps encourage top executives to reduce their CSR performance; furthermore, they indicate that this reduction is accomplished mainly through the CSR categories of diversity, community, the environment and product. The enforceability of noncompete agreements (NCAs) is examined, and the negative relationship between local compensation gaps and CSR is documented to be weaker in states that feature stronger enforcement of NCAs, which constrains labour mobility and imposes turnover costs. The findings of this research are robust to concerns regarding endogeneity and reverse causality. [ABSTRACT FROM AUTHOR]

We investigate the effectiveness of tournament theory based on the age gap between the CEO and the top management team (TMT) in Korean firms. While tournament incentives encourage managers to work harder to improve their performance, their effects may differ on executives' sociological and psychological characteristics. Under Confucian culture, where seniority is highly valued and there is great respect for a senior person, we expect that the effectiveness of tournament theory would differ based on the age gap between the CEO and TMT. Using firms listed on the Korean stock market from 2013 to 2020, we document a significant and positive relationship between the CEO and TMT pay gap and firm performance only when the CEO is older than the average executive in the TMT. Furthermore, we find a significant positive relationship between the pay gap and firm performance only when the CEOs is older than the oldest executives. In addition, we find that the incentive effect of the pay gap between the CEO and TMT exists in horizontal culture firms, even when the CEO is younger than the average age of executives in the TMT. Our findings suggest that, in the presence of an age hierarchy, older executives who feel uncomfortable inhibit collaboration among the TMT, thereby impacting the tournament incentive effect. These observations underscore the importance of social factors in designing executive compensation. [ABSTRACT FROM AUTHOR]

Tournament-like promotion systems are the default in audit firms, which are generally internally owned professional partnerships. While awarding promotions in a contest-like fashion stimulates contestants' motivation and productivity, it may also upset an organizations' ethical climate and trigger ethically adverse behaviors. Since nearly all research on promotion tournaments in management has been conducted in public firms, little is known about how these incentive systems operate in professional partnerships. In this study, we analyze how the perception of the two controllable design parameters of promotion tournaments—the relative pay spread between winners and losers and tournament breadth in terms of the number of contestants that compete for a prize—affects audit firm behavior. Survey results provide evidence that the tournament's perceived breadth prompts adverse behavior, as it does in public firms. Contrary to conventional wisdom, however, the perceived pay spread has no significant effect on adverse behavior, but triggers desirable behaviors instead. Our study suggests that promotion tournaments indeed provide powerful incentives, but also that understanding the unintended consequences of these incentives on organizational ethical climates and behavior requires tournament theory to be contextualized when it is applied in new settings like internally owned professional partnerships. [ABSTRACT FROM AUTHOR]

We investigate the relationship between the dispersion of executive pay and bank performance/valuation by examining two competing theories, the tournament theory (hierarchical wage structure) and the equity fairness theory (compressed wage structure). The key variable of executive pay dispersion is measured using a hand-collected dataset composed of 63 banks from OECD countries and 29 banks from developing countries. The dataset covers the period 2004-2012. By combining and modifying a translog profit function and a pay-dispersion model, we are able to address the potential problems of relying on reduced-form estimation. In our subsample of developed and civil law countries, where bank performance is measured by either Tobin's Q or by the price-to-book ratio, the overall impact of executive pay dispersion is mostly negative, and we find supporting evidence for the equity fairness theory, except for very high levels of dispersion. There is a non-linear effect, as banks perform best when there is either very low or very high executive pay dispersion. For developing country sample banks, greater executive pay dispersion has a negative impact on bank profit. In our subsample of common law countries, however, we find no evidence of a significant impact of executive pay dispersion on bank performance. We conclude that lower executive pay dispersion, a proxy for teamwork, is mostly effective in enhancing bank performance in a significant section of sample banks, i.e., civil law and developing countries. [ABSTRACT FROM AUTHOR]

Many environmental tax systems rely on self-reported emissions by firms. These emission reports are verified through costly auditing efforts by regulatory agencies that are constrained in their auditing budgets. A typical assumption in the literature is that the agencies allocate audit efforts randomly among otherwise identical firms (random audit mechanism). This paper compares the incentives on firms' emissions and self-reporting behavior under the random audit mechanism to the incentives under competitive audit mechanisms (CAMs). Under CAMs, higher reported emissions by a firm relative to other firms result in a lower audit intensity. This creates a reporting contest between the firms. The two CAMs under investigation apply different degrees of competitiveness in the reporting contest. I find that both CAMs lead to more truthful reporting, which is in line with the previous literature. Interestingly and novel to the literature, I find that some competition in reporting may induce fewer emissions compared with random auditing, while too much competition in reporting may induce comparatively higher emissions caused by firms. [ABSTRACT FROM AUTHOR]

Salary payments are important to us for understanding both the relationship and the causality between salary structures and team performance in labour market theory. Using salary data from the Korean Professional Baseball League (KPBL), this paper conducts Panel Granger tests to investigate the causality between pay and performance. Our empirical results show that the causality only runs from the dispersion of salary payment to team performance, but not vice versa. Moreover, the evidence also shows that total salary does not cause team performance, and vice versa. Therefore, payrolls cannot buy wins, and wins cannot bring payrolls in the KPBL. [ABSTRACT FROM AUTHOR]

We argue that financial analysts can be viewed as participants of two tournaments (the 'All-Star' tournament and the intrafirm tournament) and examine whether analysts are incentivized by the tournament compensation structure. Using data from 1991 to 2007, we find that interim losers are more likely to increase the boldness of their forecasts in the remainder of the tournament period than interim winners. This finding survives several robustness checks and is more pronounced when the interim assessment date is closer to the end of the tournament period, when analysts are inexperienced, and when the market activity is high. In addition, we show that interim losers' changes in boldness are less informative than interim winners'. Collectively, our findings suggest that viewing financial analysts as participants of tournaments provides a useful framework for understanding analysts' behavior. [ABSTRACT FROM AUTHOR]

I use personnel records of a large German company to analyse the determinants of promotions from the perspective of tournament theory and efficient allocation of employees. Main findings are that less absenteeism, more overtime, longer contractual working time, higher education, higher entry age, and longer remaining tenure are correlated with a higher promotion probability, but female employees are less likely to get promoted. Surprisingly, the promotion probability is positively correlated only with less absenteeism and more overtime in the last three months before the promotion occurs. Explanations, why short-term performance seems to be more important in the promotion process than long-term performance, might be collusion among contestants, worker heterogeneity, and biased promotion decisions by supervisors. [ABSTRACT FROM AUTHOR]

This paper examines how the organization of a civil-law judiciary—the German labour court system—shapes court performance. It is argued that civil-law judiciaries can be considered as internal labour markets in which the main incentive derives from career opportunities. Resulting hypotheses are tested on data for nine German Labour Courts of Appeal ( Landesarbeitsgerichte) over the period 1980–1998. Two performance measures are computed: the confirmation rate and a productivity measure. The confirmation rate captures how often decisions are upheld in an appeal at the Federal Labour Court. Court productivity is measured by a score derived via data envelopment analysis (DEA) and includes as outputs the number of finished cases and the number of published decisions. Regression analyses show: Courts employing more judges with a Ph.D. are more productive, but write decisions that are less often confirmed by the Federal Labour Court. Courts employing judges with higher ex ante promotion probabilities are less productive and write decisions that are less often confirmed. [ABSTRACT FROM AUTHOR]