Common Ownership, Competition, and Top Management Incentives
78 Pages Posted: 3 Jul 2016 Last revised: 1 Nov 2017
Date Written: October 19, 2017
We show theoretically and empirically that managers have steeper financial incentives to expend effort and reduce costs when an industry's firms tend to be controlled by shareholders with concentrated stakes in the firm, and relatively few holdings in competitors. A side effect of steep incentives is more aggressive competition. These findings inform a debate 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: Suggested Citation