The negative effects of common ownership on competition have received significant attention, but many proposed mechanisms for institutional investor influence seem implausible. We develop and test an analytical model of optimal compensation in an oligopoly with common ownership, focusing on revenue-based pay as a plausible channel through which institutional investors might influence competition. Our model implies a negative effect of common ownership on firms’ use of revenue-based pay. Using both associative analyses and an event study difference-in-differences design based on plausibly exogenous institutional mergers, we find no evidence of a negative relation between common ownership and the use of revenue-based pay, except in an economically small subsample of extremely concentrated owners. Results involving relative performance incentives are similar. Collectively, our results provide no support for the notion that cross-owning blockholders in general influence compensation contracts in order to soften executives’ incentives to compete aggressively. Data Availability: Data are available from the public sources cited in the text.

Agents often inflate measured performance by distorting operating decisions (e.g., real earnings management) and/or reporting decisions (e.g., accruals management). Across four studies, we find that public judgments of distortion’s acceptability largely reflect assessments of how harmful and norm-violating the distortion is. Judgments of operating distortion primarily reflect assessments of harm, whereas judgments of reporting distortion primarily reflect assessments of norm violation. These results are consistent with the Theory of Dyadic Morality (Gray, Waytz, and Young 2012; Schein and Gray 2018). We also find that those who perceive an accounting system as more unfairly withholding an agent’s bonus assess distortion (especially reporting distortion) to be less norm-violating. Those who perceive the performance measure as less appropriate for capturing the value of performance to stakeholders assess distortion (especially operating distortion) to be more harmful. Assessments of distortions’ harm and norm violation explain a substantial portion of the variation in acceptability judgments.