Discussion Paper Details

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Title: Common Ownership, Competition, and Top Management Incentives

Author(s): Miguel Antón, Florian Ederer, Mireia Giné and Martin Schmalz

Publication Date: February 2018

Keyword(s): CEO pay, Common ownership, Competition, corporate governance and management incentives

Programme Area(s): Financial Economics, Industrial Organization and Labour Economics

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.

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Bibliographic Reference

Antón, M, Ederer, F, Giné, M and Schmalz, M. 2018. 'Common Ownership, Competition, and Top Management Incentives'. London, Centre for Economic Policy Research.