Common Ownership and Voluntary Disclosure
44 Pages Posted: 14 Jul 2017 Last revised: 23 Jan 2018
Date Written: January 22, 2018
Investors increasingly hold stock in multiple firms that compete in the same product market (i.e., “common ownership” or “horizontal shareholding”). Taking market share from peers no longer maximizes shareholder value under common ownership, and this incentivizes managers to implement less competitive strategies (Azar, 2016). In this paper, we examine how common ownership affects disclosure behavior. Consistent with the existence of a negative relation between competition and disclosure, we predict and find that common ownership is associated with increased voluntary disclosure. We also show the result is diminished for firms in which there are direct communication channels and for industries with low barriers to entry. Lastly, we examine an exogenous shock to common ownership to support our assertion that common ownership causes managers to change their disclosure behavior. Our paper contributes to the literature regarding the influence of shareholder preferences on disclosure, demonstrating that common ownership affects such decisions. Our results also suggest there are spillover effects from horizontal shareholding to other shareholders in the form of increased disclosure.
Keywords: Disclosure, common ownership, horizontal shareholding
JEL Classification: M41, D22, D43
Suggested Citation: Suggested Citation