When Does Common Ownership Matter?

Abstract

We find that the effects of common ownership vary by a firm's product market characteristics. Quasi-random increases in common ownership lead to stronger decreases in R&D and increases in prices and profitability when a firm has similar products. We find that the effects of common ownership are more pronounced for firms with similar (less differentiated) products when competitive threats are high: our results are stronger for industries with lower concentration, higher advertising intensity, or lower investment intensity. Our findings highlight the importance of considering the product market characteristics of a firm and its industry when studying common ownership.

Keywords: common ownership, competition, corporate finance, institutional investors