Common Ownership, Competition, and Top Management Incentives

We show that managers have stronger financial incentives to compete against rivals when an industry’s firms tend to be controlled by shareholders with concentrated stakes in the firm, and relatively few holdings in competitors. Conversely, wealth-performance sensitivities are reduced when there is more common ownership. We exploit quasi-exogenous variation in common ownership from a mutual fund trading scandal to support a causal interpretation. These findings inform a debate about the objective function of the firm.