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Common Institutional Ownership and Product Market Threats

Author

Listed:
  • Omesh Kini

    (Georgia State University, Atlanta, Georgia 30303)

  • Sangho Lee

    (California State Polytechnic University, Pomona, Pomona, California 91768)

  • Mo Shen

    (Auburn University, Auburn, Alabama 36849)

Abstract

The common ownership of firms can have anticompetitive effects by incentivizing collusive outcomes that maximize joint surpluses of the commonly held firms or procompetitive effects through enhanced knowledge spillovers. Using a difference-in-differences regression methodology that exploits mergers between financial institutions as exogenous shocks to common ownership, our baseline results suggest that higher common ownership leads to greater product market fluidity (a text-based metric of competition) and generally leads to more product development and higher investments. These findings suggest that, on average, common ownership spurs dynamism in product spaces rather than tacit collusion between cross-held competitors. This is especially true in economic environments in which it is easier to take advantage of knowledge spillovers. However, common ownership can also inhibit product market competition and dynamism, especially in industries more prone to quasi-monopoly outcomes in product spaces. Implementing a one-size-fits-all regulatory policy limiting common ownership may be harmful in industries with strong spillover opportunities.

Suggested Citation

  • Omesh Kini & Sangho Lee & Mo Shen, 2024. "Common Institutional Ownership and Product Market Threats," Management Science, INFORMS, vol. 70(5), pages 2705-2731, May.
    • Handle: RePEc:inm:ormnsc:v:70:y:2024:i:5:p:2705-2731
    DOI: 10.1287/mnsc.2023.4830
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