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COMMON OWNERSHIP, COMPETITION, AND TOP MANAGEMENT INCENTIVES

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If you have a question about this talk, please contact Emily Brown .

Ahead of the seminar a light lunch will be available in the Common Room at 12:30

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.

This talk is part of the Economics & Policy Seminars, CJBS series.

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