Kristopher Gerardi, Michelle Lowry, and Carola Schenone
Working Paper 2023-17
November 2023

Full text Adobe PDF file format

The rapid growth in index funds and significant consolidation in the asset-management industry over the past few decades has led to higher levels of common ownership and increased attention on the topic by academic researchers. A consensus has yet to emerge from the literature regarding the consequences of increased common ownership on firm behavior and market outcomes. Given the potential implications for firms and investors alike, it is perhaps not surprising that policymakers, legal scholars, finance and accounting academics, and practitioners have all taken a keen interest in the subject. This paper provides an overview of the theoretical underpinnings of common ownership and critically reviews the empirical literature. Measurement issues and identification challenges are detailed, and a discussion of plausible causal mechanisms is provided. Across the newest papers employing the most credible identification techniques, there is relatively little evidence that common ownership causes lower competition. However, further research is necessary before broad conclusions can be reached.

JEL classification: G23, G32, G34, L22

Key words: common ownership, institutional investors, corporate governance

Carola Schenone acknowledges financial support from McIntire's summer research grants. The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.

Please address questions regarding content to Kristopher Gerardi, Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309; Michelle Lowry, LeBow College of Business, Drexel University, 3141 Chestnut Street, Philadelphia, PA 19104; or Carola Schenone, McIntire School of Commerce, University of Virginia, P.O. Box 400173, Charlottesville, VA 22904.

To receive e-mail notifications about new papers, subscribe. Under "Publications" select "Working Papers."