Common Ownership, Competition, and Top Management Incentives

78 Pages Posted: 3 Jul 2016 Last revised: 23 Jun 2017

Miguel Anton

IESE Business School, Universidad de Navarra

Florian Ederer

Yale University - School of Management; Yale University - Cowles Foundation

Mireia Gine

IESE Business School, University of Navarra ; The University of Pennsylvania

Martin C. Schmalz

University of Michigan, Stephen M. Ross School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 15, 2016

Abstract

We show theoretically and empirically that executives are paid less for their own firm's performance and more for their rivals' performance if an industry's firms are more commonly owned by the same set of investors. Higher common ownership also leads to higher unconditional total pay. We exploit quasi-exogenous variation in common ownership from a mutual fund trading scandal to support a causal interpretation. These findings challenge conventional assumptions in the corporate finance literature about the objective function of the firm.

Keywords: Common ownership, competition, CEO pay, management incentives, governance

JEL Classification: D21, G30, G32, J31, J41

Suggested Citation

Anton, Miguel and Ederer, Florian and Gine, Mireia and Schmalz, Martin C., Common Ownership, Competition, and Top Management Incentives (August 15, 2016). Ross School of Business Paper No. 1328; European Corporate Governance Institute (ECGI) - Finance Working Paper No. 511/2017. Available at SSRN: https://ssrn.com/abstract=2802332 or http://dx.doi.org/10.2139/ssrn.2802332

Miguel Anton

IESE Business School, Universidad de Navarra ( email )

08034 Barcelona
Spain

Florian Ederer

Yale University - School of Management ( email )

165 Whitney Avenue
New Haven, CT 06511
United States

HOME PAGE: http://faculty.som.yale.edu/florianederer/

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

Mireia Gine

IESE Business School, University of Navarra ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

The University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

Martin C. Schmalz (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan St
R5456
Ann Arbor, MI 48109-1234
United States
7347630304 (Phone)

HOME PAGE: http://https://sites.google.com/site/martincschmalz/

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