Working Paper: NBER ID: w27515
Authors: Lysle Boller; Fiona Scott Morton
Abstract: We test if an increase in common ownership changes future expected profits with an event study method. We collect instances of a stock entering the S&P 500 index and identify its product market competitors. We measure the change in institutional and common ownership (with product market rivals) and find that entering stocks experience a significant increase in both. We measure the stock returns of the entrant's product market rivals upon the entry news. We find that increases in common ownership (driven by the whole vector of ownership similarity) cause increases in stock returns, consistent with a hypothesis that common ownership raises profits.
Keywords: No keywords provided
JEL Codes: G14; G34; L4; L41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in common ownership (G34) | Softens competition (L13) |
| Softens competition (L13) | Higher expected future profits (G19) |
| Increase in common ownership (G34) | Higher expected future profits (G19) |
| Entry into the S&P 500 index (G24) | Increase in common ownership (G34) |
| Entry into the S&P 500 index (G24) | Stock price adjustments of rivals (L11) |
| Stock price adjustments of rivals (L11) | Higher expected future profits (G19) |
| Increased common ownership (G32) | Significant abnormal returns for rivals (G17) |
| Increased common ownership (G32) | Higher profits for all firms involved (L11) |
| Entrants without increased institutional ownership (G23) | No spillover effects (F69) |