CFDP 2046R

Common Ownership, Competition, and Top Management Incentives


Publication Date: July 2016

Revision Date: October 2017

Pages: 67


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

Keywords: Common ownership, competition, CEO pay, management incentives, governance

JEL Classification Codes: D21, G30, G32, J31, J41

See CFDP Version(s): CFDP 2046