Defusing the Antitrust Threat to Institutional Investor Involvement in Corporate Governance

38 Pages Posted: 1 Mar 2017  

Edward B. Rock

New York University School of Law

Daniel L. Rubinfeld

University of California at Berkeley - School of Law; National Bureau of Economic Research (NBER); NYU Law School

Date Written: March 1, 2017

Abstract

Thirty years of regulatory reform has focused on encouraging diversified institutional investor involvement in corporate governance. Recently, some intriguing recent economic research by Azar, Schmalz and Tecu (working paper 2015) and Azar, Raina and Schmalz (working paper 2016) purports to show that concentration among shareholdings has led to higher prices in the airline and banking industries, two concentrated industries. Based on this research, Einer Elhauge (2016) has argued that current ownership patterns by diversified institutional investors violate Section 7 of the Clayton Act. Following on Elhauge, Posner, Weyl and Scott Morton (working paper 2016) propose a “solution” in which diversified investors would be limited to acquiring one firm in any oligopoly.

In this article, we critique the economic evidence, focusing on the airline industry. We then challenge Elhauge’s legal analysis and critically examine Posner et al’s proposals. Although we are unconvinced by the rather broad claims of the existing literature, we agree that an open discussion of the antitrust implications of common ownership by large institutional investors is appropriate. Thus, in the final section, we sketch out proposed “Antitrust Guidelines,” including a safe harbor, in an effort to prevent anticompetitive effects, while continuing to encourage institutional investors’ involvement in corporate governance.

Suggested Citation

Rock, Edward B. and Rubinfeld, Daniel L., Defusing the Antitrust Threat to Institutional Investor Involvement in Corporate Governance (March 1, 2017). NYU Law and Economics Research Paper No. 17-05. Available at SSRN: https://ssrn.com/abstract=2925855

Edward B. Rock (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

Daniel L. Rubinfeld

University of California at Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States
(510) 642-1959 (Phone)
(510) 642-3767 (Fax)

HOME PAGE: http://www.law.berkeley.edu/faculty/rubinfeldd

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

NYU Law School ( email )

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New York, NY 10012-1126
United States
(212) 992 8834 (Phone)

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