This paper studies how dividing candidates in a tournament into separate tracks with differentiated performance criteria affects incentives and aggregate outcomes. We exploit China’s Major Function Oriented Zoning plan, which assigns counties to devel-opment or conservation tracks, with the latter de-emphasizing growth indicators. Using a staggered Difference-in-Differences design, we find that prefectures introducing a con-servation track achieved higher aggregate economic performance despite relaxing growth-based evaluation for part of their subordinate counties. To explain this counterintuitive ef-fect, we develop a stylized Tullock contest model that highlights two institutional features: promotion opportunities remain open to officials in both tracks, and counties within the same prefecture continue to interact across tracks. The model further predicts an inverted U-shaped relationship between the size of the conservation track and overall performance, which is supported by empirical evidence.

Recent research highlights the significant impact of managerial industry tournament incentives on internal firm decisions. However, their potential impact on external stakeholders-in the context of evolving product market relationships-has received scant attention. To address this gap, we examine the effect of customer aspiration, incentivized by CEO industry tournaments (CITIs), on supplier innovation. Utilizing customer-supplier pair-level data from 1992 to 2018, we establish that customer CITIs enhance supplier innovation, both in quantity and quality. Additionally, we identify that CITIs positively impact the relationship-specific innovation and market valuation for suppliers. The effect of CITIs is more pronounced when customers are larger, geographically closer, socially connected, and have long-standing relationships with their suppliers. The results remain robust to alternative specifications and considering potential endogeneity issues. Our study highlights the bright side of executives’ industry tournament incentives, which not only drive innovation within the sector but can also positively influence related sectors within the supply chain.

This paper investigates pay dispersion and its effects on firm performance in China’s listed firms. Due to weak investor protection and an inefficient legal system, China is expected to have a lower level of corporate governance. In this weak institutional environment, we argue that awarding sufficient power and high pay to CEOs is helpful to increase firm performance. Using data from 2002 to 2007, we find that pay dispersion is related to tournament incentives and agency factors. Importantly, we find evidence that pay dispersion is positively related to firm performance which is consistent with our primary hypothesis. In addition, the relation is more positive when the firm is controlled by the state. Our results are robust to corrections for endogeneity between pay dispersion and firm performance and to several alternative measures of pay dispersion and firm performance.

This article tests several predictions of tournament theory on executive compensation in the context of a transition economy. Using an unbalanced panel which consists of a total of 34701 executives in 450 publicly listed firms in China during 1999 and 2006, we find that (1) pay increases as executives move up the corporate hierarchy into higher ranks; (2) pay gap is the largest between the first and second tier executives, although it does not increase monotonically across all executive ranks; and (3) pay dispersion increases with the number of tournament participants and the level of noise in the business environment. In addition, we find evidence that state ownership of shares reduces executive compensation and pay gap, and corporate governance structure affect pay dispersion. Overall, our study shows that listed firms in China, as they become more and more market-oriented, have adopted a pay structure that is largely consistent with the predictions of tournament theory, and that it is important to consider both ownership structure and corporate governance in analyzing executive compensation structure.