Common Ownership, Competition, and Top Management Incentives
60 Pages Posted: 3 Jul 2016 Last revised: 2 Feb 2018
Date Written: February 2018
We show theoretically and empirically that managers have steeper financial incentives to exert effort and reduce costs when an industry's firms are controlled by shareholders with concentrated stakes in the firm, and relatively few holdings in competitors. A side effect of steeper 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