Department of Economics and Business - Universitat Pompeu Fabra

Title:: Ownership diversification and product market pricing Incentives
Authors:: Albert Banal-Estañol, Jo Seldeslachts and Xavier Vives
Date:: November 2022
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.
Area of Research:: Business Economics and Industrial Organization

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