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Ownership Diversification and Product Market Pricing Incentives

Author

Listed:
  • Albert Banal-Estañol
  • Jo Seldeslachts
  • Xavier Vives

Abstract

We link investor ownership to profit loads on rival firms by the managers of a firm. We propose a theory model in which we distinguish between passive and active investors’ holdings, where passive investors are relatively more diversified. We find that if passive investors become relatively bigger, then common ownership incentives increase. We show that these higher incentives, in turn, are linked to higher firm markups. We empirically confirm these relationships for public US firms in the years 2004-2012, where the financial crisis coincides with passive investors’ rise. The found effects are small but non-negligible.

Suggested Citation

  • Albert Banal-Estañol & Jo Seldeslachts & Xavier Vives, 2022. "Ownership Diversification and Product Market Pricing Incentives," Working Papers 1371, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:1371
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    References listed on IDEAS

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