When Does Common Ownership Matter?
AbstractI find that the effects of common ownership vary depending on firms’ product market characteristics. While an increase in common ownership does not have a consistent effect on gross margin, it raises a firm’s gross margin by an average of two percentage points for firms with similar products. Moreover, with an increase in common ownership, firms with similar products have higher profitability and reduce their R&D expenditures. I use mergers and acquisitions of financial institutions as a quasi-natural experiment to exogenously vary a firm’s common ownership levels and establish causality. My findings suggest that any
regulation to curb the anticompetitive effects of common ownership needs more industry-level analysis and should take into account the product-market characteristics of firms.