Facilitating Tacit Collusion: A New Perspective on Common Ownership and Voluntary Disclosure

Abstract

Investors increasingly hold stock in multiple firms that compete in the same product market (“common ownership”), and this ownership structure is positively associated with voluntary disclosure. We posit that common owners want managers to take coordinated anti-competitive actions (i.e., tacitly collude) across commonly owned firms to increase profits. Increased disclosure aids in coordinating and monitoring compliance with such strategies. Results show the common ownership-disclosure relation is diminished when tacit collusion is less feasible (industries with many firms, variable demand, and variable cost structures) and varies in the presence of alternative communication channels (overlapping directors, trade associations). This study broadens our understanding of the forces underlying the positive common ownership-disclosure relation, and expands the economics literature in this area by showing how managers facilitate anti-competitive outcomes in the presence of common ownership.

Keywords: Disclosure, common ownership, horizontal shareholding, tacit collusion

JEL Classification: M41, D22, D43