Working Paper: NBER ID: w25644
Authors: Erik P. Gilje; Todd Gormley; Doron Y. Levit
Abstract: 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 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 has had a significant impact on managerial incentives.
Keywords: common ownership; managerial incentives; investor inattention
JEL Codes: D82; D83; G23; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Investor Inattention (G40) | Managers' incentives to internalize the preferences of common investors (G34) |
| Overlapping Ownership Structures (G32) | Managers' incentives to internalize externalities (D62) |
| Inclusion in the same index (C43) | Managers' incentives to internalize externalities (D62) |
| Growth of common ownership (G34) | Managers' incentives to internalize externalities (D62) |