DP12674 Common Ownership, Competition, and Top Management Incentives

Author(s): Miguel Antón, Florian Ederer, Mireia Gine, Martin Schmalz
Publication Date: February 2018
Keyword(s): CEO pay, Common ownership, Competition, corporate governance, management incentives
JEL(s): D21, G30, G32, J31, J41
Programme Areas: Labour Economics, Financial Economics, Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12674

We show theoretically and empirically that managers have steeper financial incentives to exert effort and reduce costs when an industry's firms are controlled by shareholders with concentrated stakes in the firm, and relatively few holdings in competitors. A side effect of steeper incentives is more aggressive competition. These findings inform a debate about the objective function of the firm.