Social performance versus relative performance evaluation, asymmetric costs, and quantity competition under managerial delegation

Abstract

This paper considers asymmetric performance evaluation measures in a duopoly with asymmetric costs and managerial delegation under quantity competition. Asymmetry along performance measures as well as cost leads to a several surprising results. First, we find that the social performance firm with a cost advantage earns a larger profit than its rival under a specific economic environment. Second, when the relative performance firm has the cost advantage, both firms adopt a less aggressive strategy under specific conditions, while the relative performance firm always earns a larger profit than its rival. | INTRODUCTIONManagerial performance evaluation is a crucial issue for managerial decision-making practices because managerial performance can improve firm-wide performance to enhance firm value. In managerial practices, several examples not only provide a relative performance evaluation (RPE) as an incentive system but also emphasize social performance (e.g., consumer welfare, corporate social responsibility, or environmental activities). For example, from its proxy statement, we find that Textron Inc. adopts RPE to compensate its executives. 1 While Textron Inc. uses RPE to evaluate its CEO, Eaton Corporation, which is acknowledged as a peer competitor by Textron Inc., emphasizes customer value in its sustainability report. 2 These examples highlight the importance of considering the asymmetric missions and goals among competing companies. Many companies consider the benefits of customers to enhance firm value in practice.

The welfare effect of release timing of relative performance evaluation under quantity competition and asymmetric costs

“…Following Aggarwal and Samwick (1999) and Fumas (1992), previous studies have considered the impact of RPEs on firm strategies or social welfare based on a managerial delegation game (e.g., Asseburg & Hofmann, 2010; Chirco et al., 2011; Hamamura & Ramani, 2023; Hattori & Tanaka, 2016; Huang et al., 2020; Matsumura et al., 2013; Miller & Pazgal, 2005; Satoh & Tanaka, 2014; Tanaka, 2014; Wu, 2012; Xu & Matsumura, 2022).…”

The impact of technology transfer on managerial delegation under vertical product differentiation

“…Under the vertical market structure, Wang (2023a) found that managerial delegation can increase downstream firm profits. Existing literatures have analyzed the effect of production costs (Fanti & Meccheri, 2017; Hamamura & Ramani, 2023), horizontal shareholding (Nakamura, 2011), overinvestment (Pal, 2010), R&D spillover (Kräkel, 2004), corporate social responsibility (Fanti & Buccella, 2019), product quality (Wang & Wang, 2021), and market competition (Nakamura, 2017) on managerial delegation contracts. Privatization is an important part of government decision‐making (Chen et al, 2023), and there are also studies that analyze the impact of privatization decisions on management authorization contracts (Tomaru et al, 2011).…”