Common Ownership Unpacked

Olga Chiappinelli (), Konstantinos Papadopoulos and Dimitrios Xefteris
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Olga Chiappinelli: Universitat de Barcelona, BEAT

No 2023/448, UB School of Economics Working Papers from University of Barcelona School of Economics

Abstract: In this paper we study the market effects of common ownership in a setting where any ownership structure and any shareholder size is allowed. We depart from the standard reduced form approach of assuming that firms maximize a weighted average of shareholders' portfolios, and instead study the collective choice problem of shareholders head-on. In our model shareholder meetings elect firm managers by one-share one-vote majority rule. Managers differ in their degree of aversion to the negative externality of production. Voting for socially concerned managers therefore provides a mechanism for common owners to direct away the firm from own profit towards industry profit maximization. We show that allowing shareholders of any size to freely diversify their portfolio leads to monopolistic outcomes. Our results have the novel policy implication that the anticompetitive effects of common ownership can emerge even when blockholders are undiversified, but the majority of shares belongs to small diversified shareholders, indicating that small diversified portfolios may also be a threat.

Keywords: Common ownership; Shareholder voting; CSR; Competition. (search for similar items in EconPapers)
JEL-codes: D43 L11 L21 L22 L23 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:ewp:wpaper:448web

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