New results on common ownership

If firms are commonly owned by the same mutual funds and pension funds, why should they compete with each other?  This question won’t quite die.  There is a new paper by Miguel Anton, Florian Ederer, Mireia Gine, and Martin C. Schmalz on this question, and they actually find some serious evidence that a lot of jointly owned firms don’t compete against each other so vigorously.

Standard corporate finance theories assume the absence of strategic product market interactions or that shareholders don’t diversify across industry rivals; the optimal incentive contract features pay-for-performance relative to industry peers. Empirical evidence, by contrast, indicates managers are rewarded for rivals’ performance as well as for their own. We propose common ownership of natural competitors by the same investors as an explanation. We show theoretically and empirically that executives are paid less for own performance and more for rivals’ performance when the industry is more commonly owned. The growth of common ownership also helps explain the increase in CEO pay over the past decades.

Here is a related paper on the same topic.  I still don’t believe it, but I can’t tell you what is wrong with these claims either…


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