Does common ownership constrain managerial rent extraction? Evidence from insider trading profitability

Chen, Shenglan; Ma, Hui; Wu, Qiang; Zhang, Hao

doi:10.1016/j.jcorpfin.2023.102389

Cited by 17 publications

(3 citation statements)

References 98 publications

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Section: Introductionmentioning

confidence: 99%

“…The sixfold increase in common ownership in the past few decades has ignited considerable debate on whether common ownership can mitigate firm incentives to compete in product markets (Azar et al, 2018; He & Huang, 2017). Despite the rapid expansion of this literature, existing studies largely focus on the impact of common ownership on product market outcomes and firm policies (e.g., Azar et al, 2018; S. Chen et al, 2023; DesJardine et al, 2022, 2023; Ramalingegowda et al, 2021). Our study complements and extends this literature by focusing on stock market outcomes and shedding light on one more economic benefit of common ownership—the reduction in stock price crash risk, which is an important consideration for investors.…”

Section: Introductionmentioning

confidence: 99%

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Common institutional ownership and stock price crash risk

Chen,

Ma,

et al. 2023

Contemporary Accting Res

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This paper presents new evidence on the economic benefits arising from common institutional ownership. We find a negative and significant effect of common institutional ownership on stock price crash risk. This effect is robust to a battery of robustness checks and is causal according to some identification tests, including difference‐in‐differences analyses on financial institution mergers. We find evidence that the negative effect is attributable to the monitoring role of common institutional owners—a role that is enabled by common owners’ lower information processing cost and greater monitoring incentives owing to governance externalities. We also find that common owners negatively influence crash risk through constraining bad news hoarding and that common owners are more likely to force CEO turnover when a firm has higher crash risk. Overall, our results suggest that common institutional shareholders play a unique and effective monitoring role that fends off stock price crashes.This article is protected by copyright. All rights reserved.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Common institutional ownership and stock price crash risk

Chen,

Ma,

et al. 2023

Contemporary Accting Res

Self Cite

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“…See, for example,Backus et al (2021b) andKennedy et al (2017).22 See, e.g.,Chen et al (2023),Freeman (2023),He et al (2020),Kini et al (2023),Park et al (2019), andRamalingegowda et al (2021).…”

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confidence: 99%

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2023

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The rapid growth in index funds and significant consolidation in the asset-management industry over the past few decades has led to higher levels of common ownership and increased attention on the topic by academic researchers. A consensus has yet to emerge from the literature regarding the consequences of increased common ownership on firm behavior and market outcomes. Given the potential implications for firms and investors alike, it is perhaps not surprising that policymakers, legal scholars, finance and accounting academics, and practitioners have all taken a keen interest in the subject. This paper provides an overview of the theoretical underpinnings of common ownership and critically reviews the empirical literature. Measurement issues and identification challenges are detailed, and a discussion of plausible causal mechanisms is provided. Across the newest papers employing the most credible identification techniques, there is relatively little evidence that common ownership causes lower competition. However, further research is necessary before broad conclusions can be reached.

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Common ownership along supply chain and trade credit: Evidence from China

2023

Finance Research Letters

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Does common ownership constrain managerial rent extraction? Evidence from insider trading profitability

Cited by 17 publications

References 98 publications

Common institutional ownership and stock price crash risk

Common institutional ownership and stock price crash risk

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Common ownership along supply chain and trade credit: Evidence from China

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