Common Ownership, Competition, and Top Management Incentives

Miguel Anton (), Florian Ederer, Mireia Gine () and Martin Schmalz
Additional contact information
Miguel Anton: IESE Business School, Universidad de Navarra, https://www.iese.edu
Mireia Gine: IESE Business School, Universidad de Navarra, https://www.iese.edu

No 2046, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: Standard corporate finance theories assume the absence of strategic product market interactions or that shareholders don't diversify across industry rivals; the optimal incentive contract features pay-for-performance relative to industry peers. Empirical evidence, by contrast, indicates managers are rewarded for rivals' performance as well as for their own. We propose common ownership of natural competitors by the same investors as an explanation. We show theoretically and empirically that executives are paid less for own performance and more for rivals' performance when the industry is more commonly owned. The growth of common ownership also helps explain the increase in CEO pay over the past decades.

Keywords: Common ownership; competition; CEO pay; management incentives; governance (search for similar items in EconPapers)
JEL-codes: D21 G30 G32 J31 J41 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2016-07
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-com, nep-cta, nep-hrm and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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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 (2018)
Working Paper: Common Ownership, Competition, and Top Management Incentives (2017)
Working Paper: Common Ownership, Competition, and Top Management Incentives (2016)
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