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Common Ownership in America: 1980-2017

Matthew Backus, Christopher Conlon () and Michael Sinkinson

No 25454, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: When competing firms possess overlapping sets of investors, maximizing shareholder value may provide incentives that distort competitive behavior, affecting pricing, entry, contracting, and virtually all strategic interactions among firms. We propose a structurally consistent and scaleable approach to the measurement of this phenomenon for the universe of S&P 500 firms between 1980 and 2017. Over this period, the incentives implied by the common ownership hypothesis have grown dramatically. Contrary to popular intuition, this is not primarily associated with the rise of BlackRock and Van- guard: instead, the trend in the time series is driven by a broader rise in diversified investment strategies, of which these firms are only the most recent incarnation. In the cross-section, there is substantial variation that can be traced, both in the theory and the data, to observable firm characteristics – particularly the share of the firm held by retail investors. Finally, we show how common ownership can theoretically give rise to incentives for expropriation of undiversified shareholders via tunneling, even in the Berle and Means (1932) world of the “widely held firm.”

JEL-codes: G34 L0 L13 L21 (search for similar items in EconPapers)
Date: 2019-01
New Economics Papers: this item is included in nep-cfn and nep-com
Note: CF IO
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