Common Ownership, Competition, and Top Management Incentives

91 Pages Posted: 3 Jul 2016 Last revised: 16 Nov 2020

See all articles by Miguel Anton

Miguel Anton

University of Navarra, IESE Business School

Florian Ederer

Yale School of Management; Yale University - Cowles Foundation

Mireia Gine

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

Martin C. Schmalz

University of Oxford - Finance; CEPR; CESifo; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 3 versions of this paper

Date Written: November 13, 2020

Abstract

This paper presents a mechanism based on managerial compensation through which common ownership can affect product market outcomes. We embed a canonical managerial incentive design problem in a model of strategic product market competition under common ownership. Consistent with empirical evidence, firm-level variation in common ownership causes variation in managerial incentives across firms, as well as variation in product prices, market shares, concentration, and output across markets—all without communication between shareholders and firms, coordination between firms, knowledge of shareholders' incentives, or market-specific interventions by top managers. We provide empirical evidence consistent with the theoretical prediction that top management incentives are less performance-sensitive in firms whose large investors hold greater ownership stakes in industry competitors.

Keywords: Common ownership, competition, managerial incentives, corporate governance, antitrust

JEL Classification: M12, L13, J33, G32, D21

Suggested Citation

Anton, Miguel and Ederer, Florian and Gine, Mireia and Schmalz, Martin C., Common Ownership, Competition, and Top Management Incentives (November 13, 2020). 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

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Florian Ederer

Yale 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 Oxford - Finance ( email )

United States

CEPR ( email )

London
United Kingdom

CESifo ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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