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Executive incentives under common ownership

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  • Schneider, Thomas

Abstract

Relative performance evaluation (RPE) increases competition and limits pay-for-luck by rewarding executives for outperforming rivals. This study tests whether institutional investors reduce RPE use when they own stakes in competing firms. Contrary to this, the Big Three asset managers – BlackRock, Vanguard, and State Street – demonstrate strong preferences for RPE, reflected in portfolio firms' RPE adoptions, say-on-pay vote support, and peer group selections. No evidence suggests that common ownership by these or other institutional investors reduces RPE, as confidence bounds and point estimates are near zero. Overall, the rising prevalence of RPE challenges concerns about anticompetitive effects from common ownership.

Suggested Citation

  • Schneider, Thomas, 2025. "Executive incentives under common ownership," Journal of Corporate Finance, Elsevier, vol. 93(C).
    • Handle: RePEc:eee:corfin:v:93:y:2025:i:c:s0929119925000744
    DOI: 10.1016/j.jcorpfin.2025.102806
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    Keywords

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    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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