Working Paper: CEPR ID: DP17686
Authors: Albert Banalestanol; Jo Seldeslachts; Xavier Vives
Abstract: We link investor ownership to profit loads on rival firms by the managers of a firm. We propose a theory model in which we distinguish between passive and active investors’ holdings, where passive investors are relatively more diversified. We find that if passive investors become relatively bigger, then common ownership incentives increase. We show that these higher incentives, in turn, are linked to higher firm markups. We empirically confirm these relationships for public US firms in the years 2004-2012, where the financial crisis coincides with passive investors’ rise. The found effects are small but non-negligible.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in passive investor holdings (G23) | Increase in common ownership incentives (lambda) (J54) |
| Increase in common ownership incentives (lambda) (J54) | Increase in markups (D49) |
| Increase in passive investor holdings (G23) | Increase in markups (D49) |