PUBLIC POLICY

Common Ownership

Index investing has democratized access to diversified investments for millions of people, helping them achieve their long-term financial goals at a lower cost than ever before.

In recent years, some commentators have theorized that the “common ownership” of shares in competing firms within a concentrated industry may lead to anticompetitive effects. The research underpinning this theory employs faulty assumptions and problematic data and has been challenged by numerous experts. This page provides research and commentary by BlackRock and third parties addressing common ownership theories and related proposals.

The data package needed to replicate the sensitivity analysis challenging the empirical evidence underpinning these proposals is available here.

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Growing body of evidence questioning common ownership and highlighting benefits of diversified investment products

  • The strategies of anticompetitive common ownership

    Dec 17, 2018 / By C. Scott Hemphill, Marcel Kahan

    The authors consider the plausibility of various mechanisms by which common ownership would lead to anticompetitive effects. They find that for most proposed mechanisms, there is no strong theorietical basis for believing institutional owners have a motive to employ the mechanisms, no significant evidence that they do, or both. They conclude that a compelling case for reform is not warranted.

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  • The case for doing nothing about institutional investors' common ownership of small stakes in competing firms

    Dec 11, 2018 / By Thomas A. Lambert, Michael E. Sykuta

    The authors challenge the assumptions employed by recent empirical studies on common ownership and assert that the proposed policy measures would do more harm than good, as such policies would create welfare losses outweighing any potential social benefits.

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  • Common ownership: do institutional investors really promote anti-competitive behavior?

    Dec 02, 2018 / By George S. Dallas

    The author notes that the underlying common onwership theories are unsupported. The proposed common ownership policy measures would reduce the rights of investors and challenge good corporate governance and stewardship, stifling the minority shareholder voice.

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  • Common ownership, institutional investors, and antitrust

    Nov 16, 2018 / By Menesh Patel

    This paper contends that the observance of common ownership in a given market is not sufficient reason to conclude there is competitive harm in in that market. There is insufficient justification for policy responses including ownership thresholds, and restrictions on common ownership would run contrary to modern antitrust law.

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  • Common sense about common ownership

    Apr 27, 2018 / By Douglas H. Ginsburg, Keith Klovers

    In this paper, the authors argue that common ownership proponents misunderstand the incentives of institutional investors, overstate the strength of the current empirical research on common ownership, and inappropriately stretch the application of various legal statutes in their commentary.

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  • Common ownership and antitrust concerns

    Nov 16, 2018 / By Committee on Capital Markets Regulation

    The Committee finds that the empirical research underpinning common ownership theories is flawed has not demonstrated an antitrust problem; therefore, policy measures are not warranted. The policy measures that have been proposed by certain academics would harm savers and have severe consequences for the investing public if implemented.

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  • Proposal to remedy horizontal shareholding is flawed

    Jul 17, 2017 / By Elaine Buckberg, Steven Herscovici, Branko Jovanovic, James Reitzes

    The authors find that the original research suggesting competitive harm from common ownership is far from definitive and cast doubt as to whether such claims would warrant any blanket policy measure. The policy measures proposed would inflinct increased burdens on investors, raise costs, and impede households' abilities to save for their long-term financial goals.

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  • Antitrust for institutional investors

    Jul 11, 2017 / By Edward B. Rock, Daniel L. Rubinfeld

    The authors examine the claims made by common ownership proponents. They find that the proposed policy recommendations to limit the ownership of multiple firms within certain industries are overly stringent and would have a chilling effect on the valuable role of institutional investors in corporate governance.

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Papers underscoring importance of investor engagement and voting

  • Index funds and the future of corporate governance: theory, evidence, and policy

    Dec 28, 2018 / By Lucian A. Bebchuk, Scott Hirst

    This paper focuses on index fund stewardship, nothing that there are many incentives of index fund managers which the common ownership theorists do not take into account. In addition, the proposed common ownership policy responses could push investment stewardship in a direction that is overly deferential to managers.

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  • Passive investors

    Aug 18, 2018 / By Jill E. Fisch, Assaf Hamdani, Steven Davidoff Solomon

    The authors posit that due to competition with active funds - who can remove a company from their portfolio at any time - passive funds are incentivized to exercise their governance rights in an informed way. Hence, passive investors are associated with improving governance at underperforming firms and mediating activism.

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  • Passive fund providers take an active approach to investment stewardship

    Dec 06, 2017 / By Hortense Bioy, Alex Bryan, Jackie Choy, Jose Garcia-Zarate, Ben Johnson

    Investment stewardship practices are important to index managers since they cannot "vote with their feet' by selling individual stocks, given that index portfolios are designed to track an index. Index managers have a fiduciary duty to ensure good governance of the companies in which they invest on behalf of investors.

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  • Passive investors, not passive owners

    Mar 15, 2016 / By Ian Appel, Todd A. Gormley, Donald B. Keim

    The authors demonstrate that passive investors have a positive impact on firm governance that is associated with improvements in firms' long-term performance. Passive mutual funds have resulted in more independent directors, removal of takeover defenses, and more equal voting rights.

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Third party publications reflect the views of the authors and do not represent the views of BlackRock.