When one firm's strategy affects other firms' value, optimal executive incentives depend on whether shareholders have interests in only one or in multiple firms. Performance-sensitive contracts induce managerial effort to reduce costs, and lower costs induce higher output. Hence, greater...

A firm's incentives to innovate deteriorate when other firms benefit from its R&D activities without incurring a cost. We show under which conditions common ownership of firms can mitigate this impediment to corporate innovation, and test the model's empirical predictions. Common ownership...

We show theoretically and empirically that executives are paid less for their own firm’s performance and more for their rivals’ performance if an industry’s firms are more commonly owned by the same set of investors. Higher common ownership also leads to higher unconditional total pay. We...