Who’s Paying Attention? Measuring Common Ownership and Its Impact on Managerial Incentives

73 Pages Posted: 6 May 2018 Last revised: 10 Jul 2019

See all articles by Erik Gilje

Erik Gilje

University of Pennsylvania - The Wharton School

Todd A. Gormley

Washington University in St. Louis

Doron Levit

University of Pennsylvania - Finance Department; European Corporate Governance Institute (ECGI)

Date Written: May 20, 2019

Abstract

We derive a measure that captures the extent to which common ownership shifts managers’ incentives to internalize externalities. A key feature of the measure is that it allows for the possibility that not all investors are attentive to whether a manager’s actions benefit the investor’s overall portfolio. Empirically, we show that potential drivers of common ownership, including mergers in the asset management industry, and under certain circumstances even indexing, could in fact diminish managerial motives to internalize externalities. Our findings illustrate the importance of accounting for investor inattention when analyzing whether the growth of common ownership affects managerial incentives.

Keywords: Common Investors, Indexing, Institutional Ownership, Managerial Incentives

JEL Classification: D82, D83, G34

Suggested Citation

Gilje, Erik and Gormley, Todd A. and Levit, Doron, Who’s Paying Attention? Measuring Common Ownership and Its Impact on Managerial Incentives (May 20, 2019). Journal of Financial Economics (JFE), Forthcoming; European Corporate Governance Institute (ECGI) - Finance Working Paper No. 568/2018. Available at SSRN: https://ssrn.com/abstract=3165574 or http://dx.doi.org/10.2139/ssrn.3165574

Erik Gilje

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Todd A. Gormley (Contact Author)

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
(314) 935-7171 (Phone)

HOME PAGE: http://www.gormley.info

Doron Levit

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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