Who’s Paying Attention? Measuring Common Ownership and Its Impact on Managerial Incentives

Who’s Paying Attention? Measuring Common Ownership and Its Impact on Managerial Incentives

Erik P. Gilje, Todd Gormley, Doron Levit

Series number :

Serial Number: 
568/2018

Date posted :

July 19 2018

Last revised :

July 18 2018
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Keywords

  • Common investors • 
  • indexing • 
  • Institutional ownership • 
  • Managerial incentives

We discuss the challenges in quantifying common ownership and derive a measure that captures the extent to which overlapping ownership structures shift managers’ incentives to internalize externalities.

A key feature of the measure is that it allows for the possibility that not all investors are attentive to whether a manager’s actions benefit the investor’s overall portfolio. Estimating this measure for every pair of stocks between 1980 and 2012, we find that measures of ownership overlap have increased far more than managers’ motive to internalize how their choices affect other firms’ valuations. We also find no clear association between the growth of indexing and managerial motives, and our findings are robust to various modeling assumptions. Overall, our findings show that investor attention is likely important for assessing common ownership’s impact on managerial incentives.
 

Authors

Real name:
Erik P. Gilje