Common ownership—where two firms are at least partially owned by the same investor— is on the rise among publicly-held U.S. firms. In this paper, we discuss the challenges in quantifying the impact of common ownership on firms’ strategic choices and analyze the potential determinants of its rise. To do so, we derive measures that capture the extent to which common ownership will shift managers’ actions and estimate them for every pair of stocks between 1980 and 2012. Our findings suggest that naïve measures of overlapping ownership have increased far more than managers’ motive to internalize how their choices affect other firms’ valuations. We also find that the growth of indexing is unlikely to shift managerial motives. While indexing is associated with more overlapping ownership, it is also associated with a firm’s common owners spreading their assets over more stocks, which reduces common owners’ likelihood of being informed and managers’ incentives to internalize this particular source of common ownership.
Nicholas J. Chabraja Professor
Northwestern University School of Law and Kellogg School of Management
William J. Friedman and Alicia Townsend Friedman Professor of Law, Economics, and Finance
Harvard Law School