Corporate Ownership Structure and Top Executives’ Prosocial Preferences: The Role of Relational and External Blockholders

Manuscript Type. Empirical. Research Question/Issue. The relationships between corporations and their stakeholders are often based on incomplete contracts, which are difficult to enforce in courts. Corporate managers play a key role in safeguarding incomplete contracts with stakeholders. This role requires a strong prosocial motivational orientation. Although the managers’ motivational orientation is invisible, stakeholders can make inferences about it from managers’ choices and behavior. Based on these ideas, this paper asks whether managers’ motivational orientations vary according to firms’ ownership structures, i.e., ownership by relational and external blockholders. Research Findings/Insight. Results show that ownership by relational blockholders is associated with more prosocially oriented managers, whereas ownership by external blockholders is related to more self‐interested managers. This study adopts an unobtrusive measure to infer the managers’ motivational orientation. This measure reflects the managers’ willingness to pay taxes and can be assessed systematically in the Swiss empirical context. The results are corroborated using multivariate regression analysis and profile deviation analysis. Theoretical/Academic Implications. This paper joins incomplete contract theory and behavioral economics to analyze how the shareholder primacy model and the stakeholder model fit with different types of managers. Based on the idea of profile deviation, we suggest that corporate ownership structure is an important factor influencing the degree to which firms approximate these two corporate governance models, and thereby their fit with the respective manager type. Practitioner/Policy Implications. The theoretical arguments and the empirical evidence suggest that the fit between corporate ownership structure and managerial motivation merits consideration. When selecting managers, boards need to pay attention not only to their skills and competencies, but also to their motivational orientation in order to capitalize on the strengths of alternative corporate governance models.