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 :

September 11 2018

Last revised :

July 18 2018
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Keywords

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

We 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.

Empirically, 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 show that potential drivers of ownership overlap, including mergers in the asset management industry and the growth of indexing, could in fact diminish managerial motives. Our findings illustrate the importance of accounting for investor inattention and cast doubt on the possibility that the growth of common ownership in recent years has had a significant impact on managerial incentives.
 

Authors

Real name:
Erik P. Gilje