Common Ownership, Competition, and Corporate Governance

This paper presents a theoretical framework for determining the ownership stakes held by Önancial investors in companies competing in the same product market, or, in other words, the level of common ownership. In our model, the primary motivation for these investors is the anticipation of capital gains resulting from the impact of common ownership on product market competition, which leads to increased proÖtability for the Örms involved. On the other hand, common ownership undermines e§ective corporate governance by reducing monitoring, increasing extraction of private beneÖts by the manager, and inhibiting investments that contribute to Örm value. These negative effects on corporate governance act as limiting factors, ultimately determining the equilibrium level of common ownership.