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Common Ownership, Competition, and Top Management Incentives

CEPR Discussion Paper No. DP12674

56 Pages Posted: 5 Feb 2018 Last revised: 11 Jun 2018

See all articles by Miguel Anton

Miguel Anton

University of Navarra, IESE Business School

Florian Ederer

Boston University - Markets, Public Policy, and Law; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Yale University - Cowles Foundation

Mireia Gine

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

Martin C. Schmalz

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

Multiple version iconThere are 4 versions of this paper

Date Written: February 2018

Abstract

When one firm’s strategy affects other firms’ value, optimal executive incentives depend on whether shareholders have interests in only one or in multiple firms. Performance-sensitive contracts induce managerial effort to reduce costs, and lower costs induce higher output. Hence, greater managerial effort can lead to lower product prices and industry profits. Therefore, steep managerial incentives can be optimal for a single firm and at the same time violate the interests of common owners of several firms in the same industry. Empirically, managerial wealth is more sensitive to performance when a firm’s largest shareholders do not own large stakes in competitors.

Keywords: CEO pay, Common ownership, Competition, corporate governance, management incentives

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

Suggested Citation

Anton, Miguel and Ederer, Florian and Gine, Mireia and Schmalz, Martin C. and Schmalz, Martin C., Common Ownership, Competition, and Top Management Incentives (February 2018). CEPR Discussion Paper No. DP12674, Available at SSRN: https://ssrn.com/abstract=3118322

Miguel Anton (Contact Author)

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Florian Ederer

Boston University - Markets, Public Policy, and Law ( email )

Boston, MA
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI) ( email )

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

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

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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