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Tournament incentives and institutional ownership

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  • Cheong, Chee Seng
  • Yu, Chia-Feng (Jeffrey)
  • Zurbruegg, Ralf
  • Brockman, Paul

Abstract

This study examines the relationship between internal tournament competition and corporate ownership structure. Since sophisticated investors are more likely than naïve investors to understand the value-creating incentives of internal tournaments, we expect that tournament-oriented firms will attract greater ownership interest among institutional investors than individual investors. We first formalize this insight in a model and then test its empirical implications using 25 years of market data. We find strong support for our main hypothesis that internal tournament incentives are positively related to institutional ownership. This finding is robust to alternative measures of tournament competition and potential endogeneity issues. Overall, our results are consistent with the notion that institutional investors gravitate towards firms with stronger tournament competition.

Suggested Citation

  • Cheong, Chee Seng & Yu, Chia-Feng (Jeffrey) & Zurbruegg, Ralf & Brockman, Paul, 2021. "Tournament incentives and institutional ownership," International Review of Economics & Finance, Elsevier, vol. 74(C), pages 418-433.
    • Handle: RePEc:eee:reveco:v:74:y:2021:i:c:p:418-433
    DOI: 10.1016/j.iref.2021.03.022
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    More about this item

    Keywords

    Corporate tournaments; CEO Pay gap; Institutional holding;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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