Common Ownership, Competition, and Top Management Incentives
111 Pages Posted: 3 Jul 2016 Last revised: 4 May 2022
Date Written: March 29, 2021
We present a mechanism based on managerial incentives through which common ownership affects product market outcomes. Firm-level variation in common ownership causes variation in managerial incentives and productivity across firms, which leads to intra-industry and intra-firm cross-market variation in prices, output, markups, and market shares that is consistent with empirical evidence. The organizational structure of multiproduct firms and the passivity of common owners determine whether higher prices under common ownership result from higher costs or from higher markups. Using panel regressions and a difference-in-differences design we document that managerial incentives are less performance-sensitive in firms with more common ownership.
Keywords: Common ownership, competition, managerial incentives, productivity, corporate governance, antitrust
JEL Classification: M12, L13, J33, G32, D21, L21
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