Common Ownership, Competition, and Top Management Incentives

Martin Schmalz, Florian Ederer, Mireia Gine and Antón, Miguel

No 12674, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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: Common ownership; Competition; Ceo pay; Management incentives; Corporate governance (search for similar items in EconPapers)
JEL-codes: D21 G30 G32 J31 J41 (search for similar items in EconPapers)
Date: 2018-02
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-com, nep-hrm and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

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Related works:
Journal Article: Common Ownership, Competition, and Top Management Incentives (2023)
Working Paper: Common Ownership, Competition, and Top Management Incentives (2022)
Working Paper: Common Ownership, Competition, and Top Management Incentives (2017)
Working Paper: Common Ownership, Competition, and Top Management Incentives (2016)
Working Paper: Common Ownership, Competition, and Top Management Incentives (2016)
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