Common ownership, competition, and corporate governance

This paper presents a theoretical framework for determining the ownershipstakes held by financial investors in companies competing in the same product market,commonly referred to as the level of common ownership. In our model, these investors areprimarily motivated by the anticipation of capital gains resulting from the impact of com-mon ownership on product market competition, which enhances profitability for the firmsinvolved. However, common ownership also undermines effective corporate governanceby diminishing blockholders’ incentives to engage in value-enhancing behaviors, such asmanagerial monitoring. These adverse effects on corporate governance act as limiting fac-tors, ultimately determining the equilibrium level of common ownership