Saturday, Jan. 7, 2017 8:00 AM – 10:00 AM
Hyatt Regency Chicago, Plaza B
- Chair: Jeffrey Wurgler, New York University
The Financial Crisis’s Impact on Common Ownership and Competition
AbstractWe analyze the effects of the 2007 financial crisis on structural parameters of competition in the US, based on 3digit NAICS industry classifications for the period 2003-2012. Results show that whereas the crisis had no effect on product markets’ concentration measured by the traditional Herfindahl index, it did lead to a substantial growth in concentration through common ownership (i.e,. through the same investor having shares in several firms of the same industry). Furthermore, the correlation between common ownership and markups increased post-crisis. The effects found are stronger in research intensive industries.
Portfolio Diversification, Market Power, and the Theory of the Firm
AbstractThis paper develops a model of firm behavior in the context of oligopoly and portfolio diversification by shareholders. Competition for shareholder votes among potential managers seeking corporate office leads to internalization and aggregation of shareholder objectives, including shares in other firms, and the fact that shareholders are consumers and workers of the firms. When all shareholders hold market portfolios, firms that are formally separate behave as a single firm. I introduce new indices that capture the internalization effects from consumer/worker control, and discuss implications for antitrust, stakeholder theory, and the boundaries of the firm.
Common Ownership, Competition, and Top Management Incentives
AbstractWe show theoretically and empirically that executives are paid less for their own firm's performance and more for their rivals' performance if an industry's firms are more commonly owned by the same set of investors. Higher common ownership also leads to higher unconditional total pay. We exploit quasi-exogenous variation in common ownership from a mutual fund trading scandal to support a causal interpretation. These findings challenge conventional assumptions in the corporate finance literature about the objective function of the firm.
London School of Economics and Political Science
University of Virginia
University of Chicago
- G3 - Corporate Finance and Governance
- L2 - Firm Objectives, Organization, and Behavior