Common Institutional Ownership and Product Market Threats

Accepted, Management Science

93 Pages Posted: 16 Dec 2018 Last revised: 2 Mar 2023

See all articles by Omesh Kini

Omesh Kini

Georgia State University

Sangho Lee

California State Polytechnic University, Pomona

Mo Shen

Harbert College of Business, Auburn University

Date Written: March 1, 2023

Abstract

The common ownership of firms can have anti-competitive effects by incentivizing collusive outcomes that maximize joint surpluses of the commonly held firms or pro-competitive effects through enhanced knowledge spillovers. Using a difference-in-differences regression methodology that exploits mergers between financial institutions as exogenous shocks to common ownership, our baseline results suggest that higher common ownership leads to greater product market fluidity (a text-based metric of competition) and generally leads to more product development and higher investments. These findings suggest that, on average, common ownership spurs dynamism in product spaces rather than tacit collusion between cross-held competitors. This is especially true in economic environments in which it is easier to take advantage of knowledge spillovers. However, common ownership can also inhibit product market competition and dynamism, especially in industries more prone to quasi-monopoly outcomes in product spaces. Implementing a one-size-fits-all regulatory policy limiting common ownership may be harmful in industries with strong spillover opportunities.

Keywords: Common Institutional Ownership, Product Market Fluidity, Industry Concentration, Technology Proximity, Entry Costs, Total Product Similarity, Investments

JEL Classification: L10, G34, L11, L41

Suggested Citation

Kini, Omesh and Lee, Sangho and Shen, Mo, Common Institutional Ownership and Product Market Threats (March 1, 2023). Accepted, Management Science, Available at SSRN: https://ssrn.com/abstract=3301998 or http://dx.doi.org/10.2139/ssrn.3301998

Omesh Kini

Georgia State University ( email )

University Plaza
Atlanta, GA 30303-3083
United States
404-651-2656 (Phone)

Sangho Lee (Contact Author)

California State Polytechnic University, Pomona ( email )

3801 West Temple Avenue
College of Business Administration
Pomona, CA 91768
United States

Mo Shen

Harbert College of Business, Auburn University ( email )

405 West Magnolia Ave
Auburn, AL 36849
United States

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