Tuesday, December 12, 2017
Martin C. Schmalz, University of Michigan, Stephen M. Ross School of Business addresses Common Ownership Concentration and Corporate Conduct.
ABSTRACT: The question whether and how ownership between strategically interacting firms affects firm behavior has been the subject of theoretical inquiry for decades. Since then, consolidation and increasing concentration in the asset management industry has led to more pronounced ownership links between firms, and recent empirical research has provided evidence for the validity of some of the literature's key predictions. The resulting antitrust concerns have received much attention from policy makers worldwide. However, the implications are more general: common ownership concentration (CoOCo) affects the objective function of the firm, and therefore has implications for all subfields of economics studying corporate behavior -- including corporate governance, strategy, industrial organization, and all of financial economics. This article connects the papers establishing the theoretical foundations, reviews the existing empirical and legal literatures, and discusses challenges and opportunities for future research.