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  5. Diversification, Common Ownership, and Strategic Incentives

AEA Papers and Proceedings

ISSN 2574-0768 (Print) | ISSN 2574-0776 (Online)

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Diversification, Common Ownership, and Strategic Incentives

  • Albert Banal-Estañol
  • Jo Seldeslachts
  • Xavier Vives
AEA Papers and Proceedings
vol. 110, May 2020
(pp. 561–64)
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Abstract

We argue that within-industry investor diversification is directly related to common ownership incentives (profit loads on rival firms by the manager of a firm) in product markets. Because of their respective investment strategies, passive investors are naturally more diversified than active investors. If more money flows from active toward passive investors, then common ownership incentives increase. The opposite occurs if active investors receive more money flows. This pattern is shown in two example US industries for the period 2004–2012.

Citation

Banal-Estañol, Albert, Jo Seldeslachts, and Xavier Vives. 2020. "Diversification, Common Ownership, and Strategic Incentives." AEA Papers and Proceedings, 110: 561–64. DOI: 10.1257/pandp.20201026

Additional Materials

JEL Classification

  • D22 Firm Behavior: Empirical Analysis
  • G24 Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
  • G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill