Over the past three decades, there has been tremendous change in ownership of publicly traded firms in the U.S. Consolidation in the asset management industry and the rise in mutual fund investing have led to a small number of institutional investors becoming the largest shareholders of most listed firms. Today, just shy of 70% of U.S. public firms are commonly owned. According to Compustat, Black Rock and Vanguard Group are among the largest five shareholders of more than 53% of the firms in its database.
Given this significant shift toward common ownership, it’s important to understand the consequences on a company’s behavior. Does common ownership impact competition? Does it benefit investors?
Prior literature suggests that common ownership decreases competitive behavior. The theory is that managers of co-owned firms behave in ways to increase the portfolio value of the common owners. It also maintains that disclosure by one firm in an industry is good for everyone, as there are spillover effects related to liquidity and cost of capital for other firms in that industry.