In the U.S. airline industry, taking common ownership into account implies increases in market concentration that are 10 times larger than what is “presumed likely to enhance market power” by antitrust authorities.1 Within‐route changes in common ownership concentration robustly correlate with route‐level changes in ticket prices, even when we only use variation in ownership due to the combination of two large asset managers.
Using fixed-effect panel regressions, we find that ticket prices are approximately 3% to 7% higher in the average U.S. airline route than would be the case under separate ownership.
This industry focus is motivated by the fact that high-quality route-level price and quantity data are publicly available, and each route can be considered a separate market. Only variation in airline ownership caused by a consolidation event in the asset management industry that is unlikely to be caused by developments in the U.S. airline industry supports a causal interpretation of our results.
While an increase in common ownership does not have a consistent effect on gross margin, it raises a firm’s gross margin by an average of two percentage points for firms with similar products. Moreover, with an increase in common ownership, firms with similar products have higher profitability and reduce their R&D expenditures. I use mergers and acquisitions of financial institutions as a quasi-natural experiment to exogenously vary a firm’s common ownership levels and establish causality.
Bootstrap analyses show that the variance of actual performance is higher than would be expected by chance, suggesting that some investors consistently outperform. Extending the Bayesian approach of Korteweg and Sorensen, we estimate that a one‐standard‐deviation increase in skill leads to an increase in annual returns of between one and two percentage points.
We use a bootstrap approach to simulate the distribution of LPs’ performance under the assumption that all LPs are identically skilled. We measure performance first in terms of the proportion of an LP's investments that are in the top half of the return distribution for funds of the same type in the same vintage year, and then in terms of average returns across all of the LP's private equity investments. Comparisons of the distributions of actual performance with the bootstrapped distributions suggest that more LPs do consistently well (above median) or consistently poorly (below median) in their selection of private equity funds than what one would expect in the absence of differential skill.
Our results show that cross-held firms experience significantly higher market share growth than non-cross-held firms. We establish causality by relying on a difference-in-differences approach based on the quasi-natural experiment of financial institution mergers. We also find evidence suggesting that institutional cross-ownership facilitates explicit forms of product market collaboration (such as within-industry joint ventures, strategic alliances, or within-industry acquisitions) and improves innovation productivity and operating profitability. Overall, our evidence indicates that cross-ownership by institutional blockholders offers strategic benefits by fostering product market coordination.
We find that SWFs prefer large and poorly performing firms facing financial difficulties. Their investments have a positive effect on target firms’ stock prices around the announcement date but no substantial effect on firm performance and governance in the long-run. We also find that transparent SWFs are more likely to invest in financially constrained firms and have a greater impact on target firm value than opaque SWFs. Overall, SWFs are similar to passive institutional investors in their preference for target characteristics and in their effect on target performance, and SWF transparency influences SWFs’ investment activities and their impact on target firm value.
Using voluntary SWF transparency as a proxy for the quality of screening and monitoring by SWFs, we analyze SWFs’ investment activities and their impact on target firm value in this paper.
Institutions have a strong tendency to buy stocks classified as overvalued (short leg of anomaly), and that these stocks have particularly negative ex-post abnormal returns. Our results differ from numerous studies documenting a positive relation between institutional demand and future returns.
Do they exploit well-known sources of predictability in returns? That institutions fail to use such information is more than a little puzzling.
For example, during the anomaly portfolio formation window (prior to anomaly returns) there is a net increase in both the number of institutional investors and fraction of shares held by institutional investors in shortleg stocks for all seven of the anomalies we consider.
We study the performance of equity mutual funds run by asset management divisions of commercial banking groups using a worldwide sample. We show that bank-affiliated funds underperform unaffiliated funds by 92 basis points per year. Consistent with conflicts of interest, the underperformance is more pronounced among those affiliated funds that overweight more the stock of the bank’s lending clients. Divestitures of asset management divisions by banking groups support a causal interpretation of the results. Our findings suggest that affiliated fund managers support their lending divisions’ operations to reduce career concerns at the expense of fund investors.
This paper challenges the view that foreign investors lead firms to adopt a short-term orientation and forgo long-term investment. Using a comprehensive sample of publicly listed firms in 30 countries over the period 2001–2010, we find instead that greater foreign institutional ownership fosters long-term investment in tangible, intangible, and human capital. Foreign institutional ownership also leads to significant increases in innovation output. We identify these effects by exploiting the exogenous variation in foreign institutional ownership that follows the addition of a stock to the MSCI indexes. Our results suggest that foreign institutions exert a disciplinary role on entrenched corporate insiders worldwide.