Modelling the Objective Function of Managers in the Presence of Overlapping Shareholding
37 Pages Posted: 3 Nov 2018 Last revised: 26 Mar 2021
Date Written: March 22, 2021
The recent increase of overlapping shareholding has challenged the assumption of own-firm profit maximization. The managers of firms with overlapping shareholders, rather than maximizing own profit, may internalize the externalities their strategies impose on other firms. This internalization can decrease the incentives to compete and lessen market competition. We make use of a probabilistic voting model (in which shareholders vote to elect the manager) to examine the key assumptions necessary to microfound a formulation of the objective function of managers that satisfies six properties, which we identify as desirable to empirically examine the impact of overlapping ownership on market competition.
Keywords: Manager Objective Function, Overlapping Shareholding, Ownership Dispersion, Proportional Control, Banzhaf Control
JEL Classification: L13, L41
Suggested Citation: Suggested Citation