Common Ownership, Competition, and Top Management Incentives
93 Pages Posted: 3 Jul 2016 Last revised: 1 Feb 2021
Date Written: November 13, 2020
This paper presents a mechanism through which common ownership affects product market outcomes. We embed a managerial incentive design problem in a model of strategic product market competition under common ownership. Consistent with empirical evidence, firm-level variation in common ownership causes variation in managerial incentives across firms, as well as intra-industry cross-market variation in prices, market shares, concentration, and output—all without communication between shareholders and firms, coordination between firms, knowledge of shareholders' incentives, or market-specific interventions by top managers. We empirically document that managerial compensation is less performance-sensitive in firms whose investors hold greater stakes in industry competitors.
Keywords: Common ownership, competition, managerial incentives, productivity, corporate governance, antitrust
JEL Classification: M12, L13, J33, G32, D21, L21
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