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The Effect of Common Ownership on Profits: Evidence From the U.S. Banking Industry

Jacob P. Gramlich and Serafin J. Grundl
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No 2018-069, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Theory predicts that \"common ownership\" (ownership of rivals by a common shareholder) can be anticompetitive because it reduces the weight firms place on their own profits and shifts weight toward rival firms held by common shareholders. In this paper we use accounting data from the banking industry to examine empirically whether shifts in the profit weights are associated with shifts in profits. We present the distribution of a wide range of estimates that vary the specification, sample restrictions, and assumptions used to calculate the profit weights. The distribution of estimates is roughly centered around zero, but we find statistically significant estimates in either direction in some cases. Economically, most estimates are fairly small. Our interpretation of these findings is that there is little evidence for economically important effects of common ownership on profits in the banking industry.

Keywords: Banking; Common Ownership; Competition; Profits (search for similar items in EconPapers)
JEL-codes: G21 G34 L10 L20 L40 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2018-10-03
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-com, nep-eff and nep-ind
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DOI: 10.17016/FEDS.2018.069

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