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Testing the Theory of Common Stock Ownership

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  • 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.

Suggested Citation

  • Lysle Boller & Fiona Scott Morton, 2020. "Testing the Theory of Common Stock Ownership," NBER Working Papers 27515, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27515
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    Cited by:

    1. Steven C. Salop & Fiona Scott Morton, 2021. "The 2010 HMGs Ten Years Later: Where Do We Go From Here?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(1), pages 81-101, February.
    2. Vives, Xavier & Banal-Estanol, Albert & Seldeslachts, Jo, 2022. "Ownership Diversification and Product Market Pricing Incentives," CEPR Discussion Papers 17686, C.E.P.R. Discussion Papers.
    3. Andrew Leigh & Adam Triggs, 2021. "Common Ownership of Competing Firms: Evidence from Australia," The Economic Record, The Economic Society of Australia, vol. 97(318), pages 333-349, September.
    4. Kristopher Gerardi & Michelle Lowry & Carola Schenone, 2023. "A Critical Review of the Common Ownership Literature," FRB Atlanta Working Paper 2023-17, Federal Reserve Bank of Atlanta.
    5. José Azar & Xavier Vives, 2021. "General Equilibrium Oligopoly and Ownership Structure," Econometrica, Econometric Society, vol. 89(3), pages 999-1048, May.
    6. Bruno Pellegrino, 2023. "Product Differentiation and Oligopoly: A Network Approach," CESifo Working Paper Series 10244, CESifo.
    7. Matthew Backus & Christopher Conlon & Michael Sinkinson, 2021. "Common Ownership and Competition in the Ready-to-Eat Cereal Industry," NBER Working Papers 28350, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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