Who’s Paying Attention? Measuring Common Ownership and Its Impact on Managerial Incentives
73 Pages Posted: 6 May 2018 Last revised: 10 Jul 2019
Date Written: May 20, 2019
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: Suggested Citation