Common Ownership
Common Ownership
Common Ownership centres on the implications of growing horizontal ownership concentration in industries by large investment managers, especially those offering index tracking funds. The debate addresses the competition analysis of any company that may want to engage in a horizontal merger (or any merger at all). And because it directly affects the actions of large asset managers as shareholders, it is also bears directly on the debate over large asset managers’ stewardship role. From a macroeconomic perspective, central bankers and policy makers are discussing the reasons for stagnant wages and a falling labour share relative to capital. A growing and contested academic literature has argued that horizontal ownership concentration exacerbates these trends by reducing competition. What is the role of asset managers in the governance of listed companies and does constraining that role serve to increase that of other categories shareholders, producing a set of unintended governance consequences? Does the stewardship agenda contribute to lessening product market competition by encouraging (if not demanding) asset managers to influence companies’ strategy? What are the consequences for antitrust and securities regulators? Given the powerful forces giving rise to equity intermediation and concentration in the asset management industry now catalysed by sharply dropping (or the complete elimination of) management fees, how does competition policy create trade-offs with other areas of policy concern such as facilitating retirement savings in developed nations with aging populations? Is ownership concentration producing a normative conception of corporate governance that is univocal?
In May 2018, at the ECGI Annual Members Meeting, a focus panel on “Common Ownership: Antitrust Meets Corporate Governance” discussed the challenges faced by asset managers holding significant stakes in multiple companies in the same industry. The discussion brought out very clearly the tension between increased stewardship and governance involvement on the one hand, and concerns about potential collusion between competing firms having the same shareholders. The discussion highlighted the desirability of increased stewardship engagement that does not impair product market competition and thus entails no antitrust liability risk for asset managers.
In August 2018, the research that triggered much of this debate was published in the Journal of Finance, (available here) : Azar, José and Schmalz, Martin C. and Tecu, Isabel "Anticompetitive Effects of Common Ownership” (Journal of Finance, Volume 73, Issue 4, Pages: 1513-1565, First Published: 25 May 2018). The publication includes a long internet appendix and a replication package. The package should make it possible for anyone with access to Thomson Reuters ownership data and a Stata licence to replicate the results of the paper.
Also in August, a paper with opposing findings (Dennis, Patrick J. and Gerardi, Kristopher and Schenone, Carola, Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry (February 5, 2018), available at SSRN: https://ssrn.com/abstract=3063465 or http://dx.doi.org/10.2139/ssrn.3063465) was awarded the best conference paper prize at the European Finance Association annual meeting in Warsaw, a significant endorsement. The Prize Committee comprised of Alex Edmans, London Business School and ECGI; Alexi Savov, NYU Stern; and Laura Starks, The University of Texas at Austin and ECGI.
ECGI will continue to track the debate and make new contributions and resources available through these pages.
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Resources:
Academic Papers:
Azar, José and Schmalz, Martin C. and Tecu, Isabel "Anticompetitive Effects of Common Ownership” (Journal of Finance, Volume 73, Issue 4, Pages: 1513-1565, First Published: 25 May 2018
Bebchuk, Lucian A. and Hirst, Scott, Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy (June 12, 2018). Available at SSRN: https://ssrn.com/abstract=3282794 or http://dx.doi.org/10.2139/ssrn.3282794
Gramlich, Jacob and Grundl, Serafin, The Effect of Common Ownership on Profits: Evidence from the U.S. Banking Industry (2018-10-03). FEDS Working Paper No. 2018-069. Available at SSRN: https://ssrn.com/abstract=3269120 or http://dx.doi.org/10.17016/FEDS.2018.069
Backus, Conlon et al. (2018), Common Ownership and Competition in the Ready-To-Eat Cereal Industry, Mimeo http://www.law.northwestern.edu/research-faculty/searlecenter/events/antitrust/documents/sinkinson_cereal.pdf
Concurrences Review and NYU Stern: The Global Antitrust Economics Conference New York City, New York
ASSESSMENT OF THE EFFECTS OF COMMON SHAREHOLDING ON MARKET SHARES AND CONCENTRATION MEASURES
Presentation slides: https://www.ftc.gov/system/files/documents/public_events/1422929/cpc-hearings-nyu_12-6-18.pdf
Video Part 1: https://www.ftc.gov/news-events/audio-video/video/ftc-hearing-8-dec-6-corporate-governance-institutional-investors-0
Video Part 2: https://www.ftc.gov/news-events/audio-video/video/ftc-hearing-8-dec-6-corporate-governance-institutional-investors
BlackRock letter to FTC (15 January 2019) FTC - Competition and Consumer Protection in the 21st Century – Hearing #8 and Remarks by Barbara Novick at FTC Hearing #8 on Competition and Consumer Protection in the 21st Century
Contact:
Prof. Marco Becht
The Strategies of Anticompetitive Common Ownership
Recent scholarship considers anticompetitive effects of common concentrated ownership. Empirical evidence reporting that common concentrated owners (“CCOs”) are associated with higher prices and lower output poses a sharp challenge to antitrust...Read more
Who’s Paying Attention? Measuring Common Ownership and Its Impact on Managerial Incentives
We derive a measure that captures the extent to which overlapping ownership structures shift managers’ incentives to internalize externalities. A key feature of the measure is that it allows for the possibility that not all investors are...Read more
Institutional Investor Voting Behavior: A Network Theory Perspective
This paper shows how network theory can improve our understanding of institutional investors’ voting behavior and, more generally, their role in corporate governance. The standard idea is that institutional investors compete against each other on...Read more
Does the Potential to Merge Reduce Competition?
We study anti-competitive mergers in a dynamic model with noisy collusion. At each instant, firms either privately choose output levels or merge, which trades off benefits of avoiding price wars against the costs of merging. There are three...Read more
Overlapping Ownership, R&D Spillovers, and Antitrust Policy
This paper considers cost-reducing R&D investment with spillovers in a Cournot oligopoly with overlapping ownership. We show that overlapping ownership leads to internalization of rivals’ profits by firms and find that, for demand not too...Read more
Are Investors Aware of Ownership Connections?
We examine the market reactions to earnings announcements within a parent-subsidiary ownership structure. We find that the parents’ investors react to all announcements within the group either immediately or with delay, whereas subsidiaries’...Read more
Common Ownership, Competition, and Top Management Incentives
When one firm's strategy affects other firms' value, optimal executive incentives depend on whether shareholders have interests in only one or in multiple firms. Performance-sensitive contracts induce managerial effort to reduce costs, and lower...Read more
Governance Under Common Ownership
Conventional wisdom is that diversification weakens governance by spreading an investor too thinly. We show that, when an investor owns multiple firms ("common ownership"), governance through both voice and exit can strengthen -- even if the...Read more
The ECGI focus panel on “Common Ownership: Antitrust Meets Corporate Governance”, moderated by Prof. Marco Becht (ULB), composed of Prof.
We show theoretically and empirically that executives are paid less for their own firm’s performance and more for their rivals’ performance if an i