Common Ownership, Competition, and Top Management Incentives

Miguel Anton (IESE)
Florian Ederer (Yale University)
Mireia Gine (IESE)
Martin Schmalz (University of Michigan)

Abstract : 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 exploit quasi-exogenous variation in common ownership from a mutual fund trading scandal to support a causal interpretation. These findings challenge conventional assumptions in the corporate finance literature about the objective function of the firm.

De-politicization and Corporate Transformation

Daniel Berkowitz (University of Pittsburgh)
Chen Lin (Hong Kong University)
Sibo Liu (Hong Kong University)

Abstract : It is well understood that when firms get favorable treatment from the government primarily because of their political connections, they may operate inefficiently while enjoying market advantages over their unconnected peers. However, how firms respond to a sustained removal of their political connections has not been clearly studied. This paper evaluates an unanticipated reform in China that removed government officials from independent directorships in listed companies. Our evidence indicates that privately owned firms that employed government officials as independent directors pre-treatment became more productive, more innovative and more transparent, and invested more efficiently post-treatment.

Privatising the Crown Jewels: a Theoretical Analysis of Partial Privatisation

Evagelos Pafilis (King's College London)

Abstract : This paper examines partial privatisation and share allocation. We consider two types of private investors, institutional and retail, who differ in their ability to exercise control. We show that for a politician primarily interested in proceeds, institutional participation is optimal as it promotes monitoring with a positive impact on proceeds. If the politician is interested in both control and proceeds, institutional and retail participation is optimal as it generates substantial proceeds at a minimum cost to control. Finally, for a politician primarily interested in control, it is optimal to allocate a minority stake to retail investors.

Strategic Public Shaming: Evidence from Chinese Antitrust

Angela Zhang (King's College London)

Abstract : This article examines strategic public shaming, a novel form of regulatory tactic employed by the National Development and Reform Commission (NDRC) during its enforcement of the Anti-Monopoly Law. Based on analysis of media coverage and interview findings, the study finds that the way the NDRC disclosed its investigation is highly strategic depending on the firm’s co-operative attitude toward the investigation. Event studies further show that the NDRC’s proactive disclosure resulted in significantly negative abnormal returns of the stock prices of firms subject to the disclosure. For instance, Biostime, an infant-formula manufacturer investigated in 2013, experienced -22% cumulative abnormal return in a three-day event window, resulting in a loss of market capitalization that is 27 times the ultimate antitrust fine it received. The NDRC’s strategic public shaming could therefore result in severe market sanction that deters firms from defying the agency.