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Common Ownership, Competition, and Corporate Governance

Author

Listed:
  • Vincenzo Denicolò

    (Department of Economics, University of Bologna, 40126 Bologna, Italy; and Centre for Economic Policy Research, London EC1V 0DX, United Kingdom)

  • Fausto Panunzi

    (Centre for Economic Policy Research, London EC1V 0DX, United Kingdom; and Dipartimento di Economia, Bocconi University, 20136 Milano, Italy; and Innocenzo Gasparini Institute of Economic Research, 20136 Milano, Italy; and European Corporate Governance Institute, c/o the Royal Academies of Belgium, Palace of the Academies, 1000 Brussels, Belgium)

Abstract

This paper presents a theoretical framework for determining the ownership stakes held by financial investors in companies competing in the same product market, commonly referred to as the level of common ownership. In our model, these investors are primarily motivated by the anticipation of capital gains resulting from the impact of common ownership on product market competition, which enhances profitability for the firms involved. However, common ownership also undermines effective corporate governance by diminishing blockholders’ incentives to engage in value-enhancing behaviors, such as managerial monitoring. These adverse effects on corporate governance act as limiting factors, ultimately determining the equilibrium level of common ownership.

Suggested Citation

  • Vincenzo Denicolò & Fausto Panunzi, 2025. "Common Ownership, Competition, and Corporate Governance," Management Science, INFORMS, vol. 71(5), pages 3924-3943, May.
    • Handle: RePEc:inm:ormnsc:v:71:y:2025:i:5:p:3924-3943
    DOI: 10.1287/mnsc.2023.03467
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