Ultimate ownership and bank competition

Abstract

We document substantial time‐series and cross‐sectional variation in branch‐level deposit account interest rates, maintenance fees, and fee thresholds, and examine whether variation in bank concentration helps explain variation in these prices. Herfindahl–Hirschman Index (HHI) alone is not correlated with any of the outcome variables. A “generalized HHI” (GHHI) capturing both common ownership (the degree to which banks are commonly owned by the same investors) and cross‐ownership (the extent to which banks own shares in each other), is strongly correlated with all prices, even when we limit cross‐sectional variation in bank ownership to only that predicted by the growth of index funds.

Common institutional ownership and corporate misconduct

“…We further investigate the role of state blockholders with multiple blockholdings (common state blockholders). 34 StateCrossDum equals 1 when a firm owns common state blockholders in a year, 35 Much literature argues that common ownership may lead to softer competition (e.g., Azar et al, 2022Azar et al, , 2018, and some literature recommends antitrust enforcement actions (e.g., Elhauge, 2015) or proposes a policy (e.g., Posner et al, 2017) 20 Some institutions do not disclose their holdings at the end of the first or the third quarter, so we compute the maximum value, not the average of quarter values, to alleviate errors caused by incomplete disclosure. For example, there are two common blockholders, Institutions A and B, of firm i in year t. Institutions A and B hold 6% and 8% shares of firm i in the whole year, respectively.…”

“…So, when corporate practice has external impacts on other co-owned firms, common ownership leads to the internalization of externalities and promotes (prevents) practice with positive (negative) externalities (Ant on et al, 2021;He et al, 2019;Park et al, 2019;Ramalingegowda et al, 2021). Some literature argues that common ownership in competing firms may reduce industry competition (Azar et al, 2022(Azar et al, , 2018, 2 and they find a dramatic increase in industry concentration after considering common ownership (Ant on et al, 2018;Azar et al, 2018). This leads to the antitrust concern (Baker, 2016;Elhauge, 2015;Posner et al, 2017) and attracts policymakers' attention.…”

“…While common ownership may reduce industry competition (e.g., Azar et al, 2022Azar et al, , 2018, which even raises antitrust concern (e.g., Baker, 2016;Elhauge, 2015;Posner et al, 2017), it can also bring benefits such as improving corporate collaborations, innovation efficiency, and corporate governance (e.g., Chen et al, 2021;Freeman, 2021;He et al, 2019He et al, , 2020He & Huang, 2017;Kang et al, 2018;Li et al, 2021;Ramalingegowda et al, 2021). It's important for policymakers to understand both the costs and benefits of common ownership.…”

Welfare effects of common ownership in an international duopoly

“…Hence, the firms may account for industry profits rather than simply their own profits in the presence of common ownership (López and Vives 2019, Vives 2020). Such common ownership may reduce firms' incentive to compete (Azar et al 2018, 2022; Moreno and Petrakis 2022) and may harm consumer welfare.Thus, common ownership has become a central issue in recent antitrust debates (Elhauge 2016, Backus et al 2021).…”

Partial ownership, control, and investment in vertical relationships

“…The main focus of this literature is on the competitive effects of control in setups in which firms hold stake in their horizontal competitors (cross ownership) or in which several competitors are partially owned by the same large investor (common ownership). Empirical work by Azar et al (2022), Azar et al (2018), Backus et al (2021) and others has demonstrated that large blockholders (in particular private equity funds such as Blackrock and Vanguard) often have a noticeable effect on the decisions of the firms in which they hold equity, along various dimensions such as pricing policy, executive compensation, and investment. In contrast, this paper consider the effects of control between vertically-related trading partners which has not been previously studied.…”