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.

****

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

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
 
Azar, José and Schmalz, Martin C. and Tecu, Isabel, Reply to: 'Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry' (April 24, 2018). Available at SSRN: https://ssrn.com/abstract=3168095 or http://dx.doi.org/10.2139/ssrn.3168095
 
Rock, Edward B. and Rubinfeld, Daniel L., Antitrust for Institutional Investors (July 2017). NYU Law and Economics Research Paper No. 17-23; UC Berkeley Public Law Research Paper. Available at SSRN: https://ssrn.com/abstract=2998296 or http://dx.doi.org/10.2139/ssrn.2998296
 
Schmalz, Martin C., Common-Ownership Concentration and Corporate Conduct (May 10, 2018). Annual Review of Financial Economics, Vol. 10, December 2018; CESifo Working Paper Series No. 6908. Available at SSRN: https://ssrn.com/abstract=3046829
 
Enriques, Luca and Romano, Alessandro, Institutional Investor Voting Behavior: A Network Theory Perspective (July 2018). European Corporate Governance Institute (ECGI) - Law Working Paper No. 393/2018; Oxford Legal Studies Research Paper No. 9/2018. Available at SSRN: https://ssrn.com/abstract=3157708 or http://dx.doi.org/10.2139/ssrn.3157708
 
Melissa Newham & Jo Seldeslachts & Albert Banal-Estanol, 2018. "Common Ownership and Market Entry: Evidence from Pharmaceutical Industry," Discussion Papers of DIW Berlin 1738, DIW Berlin, German Institute for Economic Research.
 
Patel, Menesh, Common Ownership, Institutional Investors, and Antitrust (January 2, 2018). Antitrust Law Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2941031 or http://dx.doi.org/10.2139/ssrn.2941031
 
Hemphill, C. Scott and Kahan, Marcel, The Strategies of Anticompetitive Common Ownership (August 1, 2018). NYU Law and Economics Research Paper No. 18-29; European Corporate Governance Institute (ECGI) - Law Working Paper No. 423/2018. Available at SSRN: https://ssrn.com/abstract=3210373

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

 
Policy papers, reports, viewpoints and speeches:
 
Monopolies Commission (2016), Competitive Significance of Institutional Investors’ Minority Shareholdings, Excerpt from Chapter III of the Twenty-First Biennial Report of the Monopolies Commission
 
BlackRock, Index Investing and Common Ownership Theories, Viewpoint, March 2017
 
DIW, Common ownership of German companies, DIW Economic Bulletin 30, 2017
 
OECD Roundtable, Common ownership by institutional investors and its impact on competition, Paris, 6 December 2017
 
Committee on Capital Markets Regulation (FTC): Common Ownership and Antitrust Concerns, November 2017
 
Noah Joshua Phillips Commissioner, Taking Stock: Assessing Common Ownership, U.S. Federal Trade Commission, June 1, 2018
Concurrences Review and NYU Stern: The Global Antitrust Economics Conference New York City, New York
 
European Commission, CASE M.7932 – DOW/DUPONT ANNEX 5 TO THE COMMISSION DECISION
ASSESSMENT OF THE EFFECTS OF COMMON SHAREHOLDING ON MARKET SHARES AND CONCENTRATION MEASURES
 
Biennial Report of the Monopolies Commission under § 44(1) ARC, 3 July 2018 (full report only in German)
 
 
FTC Hearing (6 December 2018):
 
 
Blog posts and articles: 
 
Blogpost: Index Fund Stewardship (Harvard Law Blog June 12, 2018) Lucian Bebchuk, Alma Cohen, and Scott Hirst (Harvard Law School)
 
Blogpost: Mutual Funds, "Common Ownership" and Ownership Concentration (Moneyandbanking.com August 27, 2018Guest post by Richard Berner, Executive-in-Residence (Center for Global Economy and Business) and Adjunct Professor, NYU Stern School of Business
 
WSJ article (29 November 2018): John Bogle Sounds a Warning on Index Funds The father of the index fund says it’s probably only a matter of time before they own half of all U.S. stocks; ‘I do not believe that such concentration would serve the national interest’
 
 
****
 

Contact:

Prof. Marco Becht

marco.becht@ecgi.org

 

 

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

Erik P. Gilje
Todd Gormley
Doron Levit
11 September 2018