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Common Ownership

Paper Session

Saturday, Jan. 7, 2017 1:00 PM – 3:00 PM

Hyatt Regency Chicago, Plaza B
Hosted By: American Economic Association
  • Chair: Jeffrey Wurgler, New York University

The Rise of Common Ownership

Erik Gilje
,
University of Pennsylvania
Todd Gormley
,
Washington University-St. Louis
Doron Levit
,
University of Pennsylvania

Abstract

Using institutional level holdings for all publicly held companies in the U.S., we document the rise of common-ownership in U.S. stocks over the last 32 years and study the potential determinants of this fundamental shift in stock ownership. Estimating various measures of common ownership based on the characteristics of the overlapping shareholder base of two companies, we find that these measures increase between 1,250% and 2,300% between 1980 and 2012. We find that common ownership is higher among pairs of firms that are listed in the same indices or that share similar investment styles (e.g., pay dividends) and risk characteristics (e.g., size, value, and momentum). This evidence points toward factors that could affect common-ownership, and therefore have implications for the governance and corporate policies of U.S. firms.

The Financial Crisis’s Impact on Common Ownership and Competition

Albert Banal-Estanol
,
Pompeu Fabra University
Xavier Vives
,
IESE Business School
Jo Seldeslachts
,
University of Amsterdam

Abstract

We analyze the effects of the 2007 financial crisis on structural parameters of competition in the US, based on 3digit NAICS industry classifications for the period 2003-2012. Results show that whereas the crisis had no effect on product markets’ concentration measured by the traditional Herfindahl index, it did lead to a substantial growth in concentration through common ownership (i.e,. through the same investor having shares in several firms of the same industry). Furthermore, the correlation between common ownership and markups increased post-crisis. The effects found are stronger in research intensive industries.

Portfolio Diversification, Market Power, and the Theory of the Firm

Jose Azar
,
IESE Business School

Abstract

This paper develops a model of firm behavior in the context of oligopoly and portfolio diversification by shareholders. Competition for shareholder votes among potential managers seeking corporate office leads to internalization and aggregation of shareholder objectives, including shares in other firms, and the fact that shareholders are consumers and workers of the firms. When all shareholders hold market portfolios, firms that are formally separate behave as a single firm. I introduce new indices that capture the internalization effects from consumer/worker control, and discuss implications for antitrust, stakeholder theory, and the boundaries of the firm.

Common Ownership, Competition, and Top Management Incentives

Miguel Anton
,
IESE Business School
Florian Ederer
,
Yale University
Mireia Gine
,
University of Navarra and University of Pennsylvania
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.
Discussant(s)
Dirk Jenter
,
London School of Economics and Political Science
Pedro Matos
,
University of Virginia
Oliver Hart
,
Harvard University
Luigi Zingales
,
University of Chicago
JEL Classifications
  • G3 - Corporate Finance and Governance
  • L2 - Firm Objectives, Organization, and Behavior