Import Penetration and Executive Compensation

Abstract

We first compare several measures of import penetration and find that total imports, tariffs, and exchange rates are endogenous, while imports from China are largely exogenous. Then we examine the effects of Chinese import penetration on executive compensation of U.S. firms. We document that Chinese import penetration reduces executives' stock grants and wealth-performance sensitivity, suggesting that competition mitigates agency problems and the need for conventional alignment mechanisms.