Product market competition and target ratcheting

This study examines the effect of product market competition (PMC) on target ratcheting by conducting an OLS (ordinary lease squares) regression model that utilizes both the revision of targets and deviation of targets to measure target ratcheting. Using executive EPS targets from S&P 1500 firms from 2012 to 2020, I find that higher PMC, as measured by TNIC similarity scores, leads to less pronounced target ratcheting and asymmetric target ratcheting, indicating that PMC, rather than past performance, provides more informational value about managerial efforts. Ultimately, this study contributes to the literature by identifying PMC as a determinant of target ratcheting.