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Managerial incentives and strategic choices of firms with different ownership structures

Shantanu Banerjee and Swarnodeep Homroy

Journal of Corporate Finance, 2018, vol. 48, issue C, 314-330

Abstract: We examine how ownership structure affects managerial incentive alignment mechanisms and strategic objectives. We compare large Indian firms with dispersed equity ownership with business-group affiliates operating within the same institutional frameworks. We find that the performance sensitivity of CEO pay and turnover differ significantly across group affiliates and stand-alone firms. The strategic choices of firms also differ in response to managerial incentives. However, we find that, regardless of those differences, firm performance is similar for both types of firms. Overall, this paper suggests that ownership structure and managerial incentives can adjust to optimize strategic choices and firm performance.

Keywords: Corporate governance; Controlling shareholders; Firm performance; Strategic choices; India (search for similar items in EconPapers)
JEL-codes: G30 G32 G34 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.jcorpfin.2017.10.001

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