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Common Ownership Unpacked

Author

Listed:
  • Olga Chiappinelli

    (Universitat de Barcelona, BEAT)

  • Konstantinos G. Papadopoulos

    (Aristotle University of Thessaloniki)

  • Dimitrios Xefteris

    (University of Cyprus, IEB)

Abstract

In this paper we study the market effects of common ownership in a setting where any ownership structure and any shareholder size is allowed. We depart from the standard reduced form approach of assuming that firms maximize a weighted average of shareholders' portfolios, and instead study the collective choice problem of shareholders head-on. In our model shareholder meetings elect firm managers by one-share one-vote majority rule. Managers differ in their degree of aversion to the negative externality of production. Voting for socially concerned managers therefore provides a mechanism for common owners to direct away the firm from own profit towards industry profit maximization. We show that allowing shareholders of any size to freely diversify their portfolio leads to monopolistic outcomes. Our results have the novel policy implication that the anticompetitive effects of common ownership can emerge even when blockholders are undiversified, but the majority of shares belongs to small diversified shareholders, indicating that small diversified portfolios may also be a threat.

Suggested Citation

  • Olga Chiappinelli & Konstantinos G. Papadopoulos & Dimitrios Xefteris, 2023. "Common Ownership Unpacked," UB School of Economics Working Papers 2023/448, University of Barcelona School of Economics.
    • Handle: RePEc:ewp:wpaper:448web
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    File URL: http://hdl.handle.net/2445/200521
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    References listed on IDEAS

    as
    1. Chen, Tao & Dong, Hui & Lin, Chen, 2020. "Institutional shareholders and corporate social responsibility," Journal of Financial Economics, Elsevier, vol. 135(2), pages 483-504.
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    3. Azar, José, 2017. "Portfolio Diversification, Market Power, and the Theory of the Firm," IESE Research Papers D/1170, IESE Business School.
    4. Schmalz, Martin, 2018. "Common Ownership Concentration and Corporate Conduct," CEPR Discussion Papers 12598, C.E.P.R. Discussion Papers.
    5. Martin J. Osborne & Al Slivinski, 1996. "A Model of Political Competition with Citizen-Candidates," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(1), pages 65-96.
    6. Miguel Antón & Florian Ederer & Mireia Giné & Martin Schmalz, 2023. "Common Ownership, Competition, and Top Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 131(5), pages 1294-1355.
    7. Bayona, Anna & López, Ángel L. & Manganelli, Anton-Giulio, 2022. "Common ownership, corporate control and price competition," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 1066-1075.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Common ownership; Shareholder voting; CSR; Competition.;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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