Carrots and Sticks: Equilibrium Incentives in Firms with Different Equity Holding Structures

40 Pages Posted: 25 Nov 2016

See all articles by Shantanu Banerjee

Shantanu Banerjee

Lancaster University - Management School

Swarnodeep HomRoy

University of Groningen

Date Written: November 14, 2016

Abstract

This paper examines how the structure of corporate holding impacts managerial incentive alignment mechanisms, and strategic objectives. Using data from 500 large Indian firms, we compare firms with dispersed equity ownership and business-group affiliates within the same institutional framework. We find that performance sensitivity of CEO pay and turnover are different in group affiliates and stand-alone firms. The strategic choices of firms differ in response to managerial incentives. However, firm performance is similar for both types of firms, irrespective of the differences in incentive structures and strategic choices. Overall, this paper suggests that corporate holding structures and managerial incentives adjust to optimize strategic choices and firm performance.

Keywords: Corporate Governance, Controlling Shareholders, Firm Performance, Strategic Choices, India

JEL Classification: G30, G32, G34

Suggested Citation

Banerjee, Shantanu and HomRoy, Swarnodeep, Carrots and Sticks: Equilibrium Incentives in Firms with Different Equity Holding Structures (November 14, 2016). Available at SSRN: https://ssrn.com/abstract=2874330 or http://dx.doi.org/10.2139/ssrn.2874330

Shantanu Banerjee

Lancaster University - Management School ( email )

Lancaster, Lancashire LA1 4YX
United Kingdom

Swarnodeep HomRoy (Contact Author)

University of Groningen ( email )

Nettlebosje 2
Department of Economics, Econometrics and Finance
Groningen, Groningen 9747 AE
Netherlands

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
33
Abstract Views
308
PlumX Metrics