Common Institutional Ownership and Product Market Threats
76 Pages Posted: 16 Dec 2018 Last revised: 9 Feb 2021
Date Written: February 7, 2021
Overlapping institutional ownership in the same industry can have anti-competitive effects but can also elevate product market competition by promoting knowledge spillovers. Using a text-based product market threat variable, we find that, on average, firms with higher common ownership face greater competitive threats. This result, however, critically depends on industry characteristics such as the level of concentration, technology similarity, entry costs, and consumer switching costs. Evidence from firms’ new product development and investments further corroborates these findings. Our results suggest that implementing additional regulatory requirements on common ownership can potentially be welfare-destroying 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: Suggested Citation