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Does common institutional ownership mitigate hold‐up problems along the supply chain?

Author

Listed:
  • Yongning Deng
  • Jing Li
  • Qilin Peng
  • Wentao Yao

Abstract

We show that common institutional ownership (CIO) along the supply chain mitigates hold‐up problems faced by supplier–customer relationships resulting from incomplete contracts. Suppliers make more relationship‐specific investments (RSIs) measured by R&D and patent filings toward their customers that share common institutional investors. Such effect is stronger as the CIO network between a supplier and customer pair becomes wider and deeper. We establish causality by exploiting exogenous shocks to CIO using a broad sample of mergers between financial institutions and further find the CIO effects on suppliers’ innovation specificity are stronger for those who ex ante face severer hold‐up concerns. Lastly, we provide evidence that CIO involvement increases the combined valuations of supply chain pairs (mainly for customers). Our work sheds light on the hold‐up mitigation effect of CIO on firms’ decision to make RSIs along the supply chain.

Suggested Citation

  • Yongning Deng & Jing Li & Qilin Peng & Wentao Yao, 2025. "Does common institutional ownership mitigate hold‐up problems along the supply chain?," Financial Management, Financial Management Association International, vol. 54(1), pages 3-31, March.
    • Handle: RePEc:bla:finmgt:v:54:y:2025:i:1:p:3-31
    DOI: 10.1111/fima.12473
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    1. Yue Feng & Junfeng Li, 2025. "Driving Corporate Green Investment: Investigating the Role of Common Ownership Along the Supply Chain in Environmental Sustainability," Sustainability, MDPI, vol. 17(17), pages 1-27, September.

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