Common Ownership in America: 1980-2017

55 Pages Posted: 15 Jan 2019 Last revised: 21 Jul 2021

See all articles by Matthew Backus

Matthew Backus

Cornell University - Department of Economics

Christopher T. Conlon

Leonard N. Stern School of Business - Department of Economics

Michael Sinkinson

Yale SOM

Date Written: January 2019

Abstract

When competing firms possess overlapping sets of investors, maximizing shareholder value may provide incentives that distort competitive behavior, affecting pricing, entry, contracting, and virtually all strategic interactions among firms. We propose a structurally consistent and scaleable approach to the measurement of this phenomenon for the universe of S&P 500 firms between 1980 and 2017. Over this period, the incentives implied by the common ownership hypothesis have grown dramatically. Contrary to popular intuition, this is not primarily associated with the rise of BlackRock and Van- guard: instead, the trend in the time series is driven by a broader rise in diversified investment strategies, of which these firms are only the most recent incarnation. In the cross-section, there is substantial variation that can be traced, both in the theory and the data, to observable firm characteristics – particularly the share of the firm held by retail investors. Finally, we show how common ownership can theoretically give rise to incentives for expropriation of undiversified shareholders via tunneling, even in the Berle and Means (1932) world of the “widely held firm.”

Suggested Citation

Backus, Matthew and Conlon, Christopher T. and Sinkinson, Michael, Common Ownership in America: 1980-2017 (January 2019). NBER Working Paper No. w25454, Available at SSRN: https://ssrn.com/abstract=3315297

Matthew Backus (Contact Author)

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States

Christopher T. Conlon

Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States

Michael Sinkinson

Yale SOM ( email )

127 Wall Street
New Haven, CT 06511
United States

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