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 :

September 05 2019
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Keywords

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

We derive a measure that captures the extent to which common ownership shifts 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 common ownership, including mergers in the asset management industry and, under certain circumstances, even indexing, could diminish managerial motives to internalize externalities. Our findings illustrate the importance of accounting for investor inattention when analyzing whether the growth of common ownership affects managerial incentives.

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Published in

Published in: 
Publication Title: 
Journal of Financial Economics (JFE), Forthcoming

Authors

Real name:
Erik P. Gilje