Product-Market Competition and Managerial Autonomy

Christian A. Ruzzier
2007 Social Science Research Network  
It is often argued that competition forces managers to make better choices, thus favoring managerial autonomy in decision making. I formalize and challenge this idea. Suppose that managers care about keeping their position or avoiding interference, and that they can make strategic choices that a¤ect both the expected pro...ts of the ...rm and their riskiness. Even if competition at ...rst pushes the manager towards pro...t maximization as commonly argued, I show that further increases in
more » ... tive forces might as well lead him to take excessive risks if the threat on his position is strong enough. To curb this possibility, the principal-owner optimally reduces the degree of autonomy granted to the manager. Hence higher levels of managerial autonomy are more likely for intermediate levels of competition. JEL Codes: D23, L22, M12, M21
doi:10.2139/ssrn.1259860 fatcat:cv3erzaj6ngmhpjccvau6gagf4