Working Paper: CEPR ID: DP18317
Authors: Vincenzo Denicolo; Fausto Panunzi
Abstract: This paper presents a theoretical framework for determining the ownership stakes held by financial investors in companies competing in the same product market, or, in other words, the level of common ownership. In our model, the primary motivation for these investors is the anticipation of capital gains resulting from the impact of common ownership on product market competition, which leads to increased profitability for the firms involved. On the other hand, common ownership undermines effective corporate governance by reducing monitoring, increasing extraction of private benefits by the manager, and inhibiting investments that contribute to firm value. These negative effects on corporate governance act as limiting factors, ultimately determining the equilibrium level of common ownership.
Keywords: common ownership; corporate governance; antitrust
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 |
|---|---|
| common ownership (G32) | softer competition (L13) |
| softer competition (L13) | increased profitability (L21) |
| common ownership (G32) | reduced corporate governance (G38) |
| reduced corporate governance (G38) | increased private benefits extraction by managers (G34) |
| common ownership (G32) | increased profitability (L21) |
| competition intensity (L13) | common ownership (G32) |
| corporate governance quality (G38) | common ownership (G32) |