Top management incentives and supply chain efficiency: a tournament theory perspective

Purpose This study investigates how top executive tournament incentives influence supply chain efficiency and how these effects depend on supply chain risks, specifically operational risk and disruption risk. Design/methodology/approach Our sample consists of 19,669 observations from 1994 to 2023, covering 1,560 unique US firms across the manufacturing, wholesale and retail sectors. Using two-stage least squares, we empirically examine whether top executive tournament incentives, proxied by pay dispersion, are related to supply chain performance, captured by inventory efficiency and the cash conversion cycle. We further test how this relationship is moderated by operational risk, captured through the bullwhip effect and disruption risk, captured through the onset of COVID-19. Findings Firms with greater executive pay dispersion achieve more efficient supply chain performance by reducing operational slack, resulting in higher inventory efficiency and shorter cash conversion cycles. However, this positive effect weakens under high operational risk, particularly among firms experiencing pronounced bullwhip effects. Furthermore, the disruption risk triggered by COVID-19 significantly diminishes the influence of executive pay dispersion on supply chain efficiency across all firms following the outbreak of the pandemic. Originality/value This paper provides the first evidence that top executive tournament incentives are associated with improved supply chain efficiency, but primarily in relatively stable environments where reducing operational slack translates into better performance. Under heightened operational and disruption risks, however, the need for buffer inventory, cross-functional coordination, and information sharing limits the effectiveness of tournament incentives. These findings integrate economic and operations perspectives to offer a richer understanding of how executive incentives shape supply chain management.