Who's paying attention? Measuring common ownership and its impact on managerial incentives

Erik P. Gilje, Todd A. Gormley and Doron Levit

Journal of Financial Economics, 2020, vol. 137, issue 1, 152-178

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 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 (search for similar items in EconPapers)
JEL-codes: D82 D83 G34 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (30)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:137:y:2020:i:1:p:152-178

DOI: 10.1016/j.jfineco.2019.12.006

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