Working Paper: CEPR ID: DP18514
Authors: Heng Geng; Harald Hau; Roni Michaely; Binh Nguyen
Abstract: The large increase in common institutional ownership has raised legitimate antitrust concerns. Although the precise channel of any potential influence on market outcomes is unclear, common board representation has been considered one of the most likely channels facilitating this influence. Using a novel dataset on shareholders’ board representation, we examine the role of common institutional directors (i.e., joint board representation by institutional shareholders) as a potential channel with four main findings. First, institutional board representation is extremely low relative to the extensive institutional ownership. Second, common institutional directors on rival firm boards are even rarer. Third, we fail to find evidence that institutional directors represent a relevant channel of influence for common institutional shareholders to coordinate firm policies. Fourth, we contrast institutional with non-institutional common shareholders and find that joint board representation by non-institutional shareholders is linked to higher firm profitability.
Keywords: Institutional Ownership; Institutional Board Representation; Common Ownership; Competition Policy
JEL Codes: G32; G34; L4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| common institutional ownership (L22) | firm profitability (L21) |
| institutional board representation (G34) | firm profitability (L21) |
| joint board representation (J53) | coordination ability of common institutional shareholders (G34) |
| non-institutional shareholders (G23) | board representation (G34) |
| board representation (G34) | firm profitability (L21) |