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Common Ownership, Competition, and Top Management Incentives

Author

Listed:
  • Miguel Antón
  • Florian Ederer
  • Mireia Giné
  • Martin C. Schmalz

Abstract

We present a firm-level mechanism through which common ownership can affect product market outcomes consistent with empirical evidence. Our theoretical framework embeds a canonical managerial incentive design problem in a model of strategic product market competition under common ownership. Firm-level variation in common ownership causes variation in managerial incentives across firms as well as variation in product prices, market shares, concentration, and output across markets—all without communication between shareholders and firms, coordination between firms, knowledge of shareholders’ incentives, or marketspecific interventions by top managers. We empirically confirm the theoretical prediction that top management incentives are less performance-sensitive in firms where large investors hold greater ownership stakes in competitors.

Suggested Citation

  • Miguel Antón & Florian Ederer & Mireia Giné & Martin C. Schmalz, 2016. "Common Ownership, Competition, and Top Management Incentives," CESifo Working Paper Series 6178, CESifo.
    • Handle: RePEc:ces:ceswps:_6178
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    References listed on IDEAS

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    2. Jacob P. Gramlich & Serafin J. Grundl, 2017. "Estimating the Competitive Effects of Common Ownership," Finance and Economics Discussion Series 2017-029, Board of Governors of the Federal Reserve System (U.S.).
    3. Matthew Backus & Christopher Conlon & Michael Sinkinson, 2019. "Common Ownership in America: 1980-2017," NBER Working Papers 25454, National Bureau of Economic Research, Inc.
    4. Brooks, Chris & Chen, Zhong & Zeng, Yeqin, 2018. "Institutional cross-ownership and corporate strategy: The case of mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 187-216.
    5. Russell Pittman, 2017. "The Strange Career Of Independent Voting Trusts In U.S. Rail Mergers," Journal of Competition Law and Economics, Oxford University Press, vol. 13(1), pages 89-102.

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    More about this item

    Keywords

    common ownership; competition; CEO pay; management incentives; governance;

    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
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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