The Misguided Attack on Common Ownership

11 Pages Posted: 11 Dec 2018 Last revised: 20 Dec 2018

See all articles by Lucian A. Bebchuk

Lucian A. Bebchuk

Harvard Law School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)

Scott Hirst

Boston University - School of Law; Harvard Law School Program on Corporate Governance

Date Written: December 2018

Abstract

This academic presentation is based on the slides we prepared for delivery by one of us at the Federal Trade Commission hearing on Competition and Consumer Protection in the 21st Century on December 6, 2018, which focused on common ownership. The slides discuss the implications of our research work for the common ownership debate. The research work whose implications we consider includes Bebchuk, Cohen, and Hirst, The Agency Problems of Institutional Investors (2017) (https://papers.ssrn.com/abstract=2982617) and Bebchuk and Hirst, Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy (2018) (https://papers.ssrn.com/abstract=3282794).

We argue that the attack on common ownership is misguided.The claims of common ownership critics, we argue, fail to take into account how the agency problems of investment fund managers provide them with incentives to under-invest in stewardship and to be deferential toward the corporate managers of portfolio companies. Given these problems, policymakers should be primarily concerned that investment fund managers engage too little and not that they engage too much. The measures advocated by common ownership critics are not merely unnecessary but would be counterproductive; they could well discourage investment fund managers from stewardship activities that should be encouraged.

Keywords: institutional investors, common ownership, stewardship

JEL Classification: G23, G34, K22

Suggested Citation

Bebchuk, Lucian A. and Hirst, Scott, The Misguided Attack on Common Ownership (December 2018). Available at SSRN: https://ssrn.com/abstract=3298983 or http://dx.doi.org/10.2139/ssrn.3298983

Lucian A. Bebchuk (Contact Author)

Harvard Law School ( email )

Cambridge, MA 02138
United States
617-495-3138 (Phone)
617-812-0554 (Fax)

HOME PAGE: http://www.law.harvard.edu/faculty/bebchuk/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)

Scott Hirst

Boston University - School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States

Harvard Law School Program on Corporate Governance ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States

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