Why Doesn’t Common Ownership Cause Anti-Competitive Effects?

52 Pages Posted: 22 Apr 2020

Date Written: March 28, 2020

Abstract

Recent studies argue that institutional common ownership in rival firms may reduce competition in product markets. Yet, empirical evidences are mixed. I re-examine this hypothesis, documenting that competition for flows on the ground of relative performance reduces institutional investors’ ability to shift firm managers’ incentives to internalize product market externalities. Empirically, I show that the existence (static effect) and sustainability (dynamic effect) of the anti-competitive consequences of common ownership depend critically upon the degree of competition faced by relevant institutional investors. These findings emphasize the importance of accounting for asset managers’ incentives and strategic interactions when assessing the product market consequences of institutional common ownership.

Keywords: Common Institutional Ownership, Competition, Industry Concentration, Asset Management Industry, Herding

JEL Classification: L10, G34, L11, L41

Suggested Citation

Lattanzio, Gabriele, Why Doesn’t Common Ownership Cause Anti-Competitive Effects? (March 28, 2020). Available at SSRN: https://ssrn.com/abstract=3562811 or http://dx.doi.org/10.2139/ssrn.3562811

Gabriele Lattanzio (Contact Author)

Nazarbayev University ( email )

Kazakhstan

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