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

42 Pages Posted: 22 Oct 2018

See all articles by Jacob Gramlich

Jacob Gramlich

Board of Governors of the Federal Reserve System

Serafin Grundl

Board of Governors of the Federal Reserve System

Date Written: 2018-10-03

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

JEL Classification: L10, L40, L20, G21, G34

Suggested Citation

Gramlich, Jacob and Grundl, Serafin, The Effect of Common Ownership on Profits: Evidence from the U.S. Banking Industry (2018-10-03). FEDS Working Paper No. 2018-069. Available at SSRN: https://ssrn.com/abstract=3269120 or http://dx.doi.org/10.17016/FEDS.2018.069

Jacob Gramlich (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Serafin Grundl

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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