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Common Ownership, Competition, and Top Management Incentives

Miguel Antón, Florian Ederer, Mireia Gine and Martin Schmalz

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: CEO pay; Common ownership; Competition; corporate governance; management incentives (search for similar items in EconPapers)
JEL-codes: D21 G30 G32 J31 J41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-com, nep-hrm and nep-mic
Date: 2018-02
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Working Paper: Common Ownership, Competition, and Top Management Incentives (2017) Downloads
Working Paper: Common Ownership, Competition, and Top Management Incentives (2016) Downloads
Working Paper: Common Ownership, Competition, and Top Management Incentives (2016) Downloads
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