The Effect of Diversification on Price Informativeness and Governance

Edmans, Alex; Levit, Doron; Reilly, Devin

doi:10.2139/ssrn.2482935

Cited by 8 publications

(3 citation statements)

References 66 publications

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“…Lewellen & Lewellen (2018) empirically assess whether additional fees arising from increases in portfolio values would justify engagement by asset managers and conclude that "Our estimates suggest that institutional investors often have strong incentives to be active shareholders. " Edmans et al (2018) study theoretically the effect of common ownership on incentives and ability to engage in governance, and conclude that common ownership can strengthen governance. Jahnke 2017If common owners engage with the explicit aim to reduce competition, they can use (i) voice, (ii) incentives, and (iii) their vote to do so -the only tool not available to those common ownership that follow passive investment strategies is "exit" -that is, selling their shares.…”

Section: Governance Channelsmentioning

confidence: 98%

Common-Ownership Concentration and Corporate Conduct

Schmalz

2018

Annu. Rev. Financ. Econ.

171

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The question of whether and how partial common-ownership links between strategically interacting firms affect firm objectives and behavior has been the subject of theoretical inquiry for decades. Since then, the growth of intermediated asset management and consolidation in the asset management sector has led to more pronounced common-ownership links at the level at which corporate control is exercised. Recent empirical research has provided evidence consistent with the literature's prediction that common-ownership concentration (CoOCo) can affect product market outcomes. The resulting antitrust concerns have received worldwide attention. However, because CoOCo can change the objective function of a firm, the potential implications span all fields of economics that involve corporate conduct, including corporate governance, strategy, industrial organization, and financial economics. This article connects the papers establishing the theoretical foundations, reviews the empirical and legal literatures, and discusses challenges and opportunities for future research.

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Section: Governance Channelsmentioning

confidence: 98%

Common-Ownership Concentration and Corporate Conduct

Schmalz

2018

Annu. Rev. Financ. Econ.

171

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“…Chemmanur et al (2016) find that common blockholders with more than 5% holdings foster strategic alliances between firms and further improve corporate innovation. Edmans et al (2017) develop a theoretical model and show that investors who own multiple firms actually have more information on their holdings and may choose to hold firms with higher quality. Therefore, common ownership actually improves corporate governance through both voice and exit channels.…”

Section: Related Literaturementioning

confidence: 99%

Institutional cross-ownership and corporate strategy: The case of mergers and acquisitions

Brooks

Chen

Zeng

2018

Journal of Corporate Finance

127

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This article provides new evidence on the important role of institutional investors in affecting corporate strategy. Institutional cross-ownership between two firms not only increases the probability of them merging, but also affects the outcomes of mergers and acquisitions (M&As). Institutional cross-ownership reduces deal premiums, increases stock payment in M&A transactions, and lowers the completion probabilities of deals with negative acquirer announcement returns. Furthermore, deals with high institutional crossownership have lower transaction costs and disclose more transparent financial statement information. The effect of cross-ownership on the total deal synergies and post-deal longterm performance is positive, which can be attributed to independent and non-transient cross-owners. Our findings are robust after mitigating the cross-ownership asymmetry concern. Overall, our results suggest that the growth of institutional cross-holdings in U.S. stock markets may greatly change corporate strategies and decision-making processes.

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“…For example, Wong (1998a, 1998b) andHirshleifer and Teoh (2003) show that investors with limited attention fail to fully capture all relevant information on earnings news and other disclosures, which has an important implication for firms' stock prices. In a different context,Azar, Schmalz, and Tecu (2016) examine whether multiple blockholdings adversely affect corporate behaviors and find that common ownership of diversified institutional investors in airline firms significantly reduces product market competition and increases airline ticket prices.4 In their recent paper,Edmans, Levit, and Reilly (2017) show that an investor's holding of other assets in her portfolio improves price informativeness of an asset, which in turn increases a manager's incentive to increase asset value.…”

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confidence: 99%