Working Paper: CEPR ID: DP17776
Authors: Cristian Huse; Ricardo Ribeiro; Frank Verboven
Abstract: Overlapping ownership has gained considerable momentum in the last decades, yet little is known about the role of its sources. We quantify the relative importance of common ownership, by shareholders external to an industry, and cross-ownership, by firms within the industry. We focus on the global automobile industry, over the period 2007-2021, and document that common-ownership links amount to 31–40%, while cross-ownership links amount to 5–9% of automobile manufacturers’ stock. We show that not accounting for these relatively modest cross-ownership links has important implications: it underestimates the average weight assigned by managers to the profit of competitors by between 41–105%.
Keywords: automobile industry; common ownership; cross ownership; profit weights
JEL Codes: L13; L41; L62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| common ownership by shareholders external to the industry (G34) | managers assign a weight to the profits of competitors (L21) |
| managers assign a weight to the profits of competitors (L21) | less aggressive competition (L19) |
| common ownership by shareholders external to the industry (G34) | underestimation of the average weight assigned by managers to the profits of competitors (L25) |
| cross-ownership can enhance the effects of common ownership (G34) | increases the weight assigned to rival profits (D33) |
| cross-ownership can enhance the effects of common ownership (G34) | increases the number of firms considered in the weighted average by managers (L25) |
| common ownership structures (G32) | influence managerial decision-making (M54) |
| common ownership structures (G32) | internalize externalities imposed on other firms (D62) |