Overlapping Ownership Along the Supply Chain

Abstract

I find overlapping institutional ownership (OIO) in a customer and supplier increases the duration
of their supply chain relationship. Results are stronger when vertical holdup is more severe. A
quasi-natural experiment around mergers of financial institutions provides causal evidence of OIO
improving relationship survival rates. Concurrent with longer-lived relationships, valuations and
innovation increase, consistent with OIO effects on relationship longevity being beneficial. I find
evidence of OIO strengthening relationships via an internalization channel: With more OIO,
partners cooperate more, with the supplier extending more trade credit. Overall, results indicate
OIO strengthens vertical relationships by alleviating holdup problems.

Keywords: Supply chain holdup, Overlapping ownership, Information asymmetry, Institutional investors

JEL Classification: L14, M41, G23, G32