When do common owners soften competition? The role of agency frictions and repeated interaction
Type
working paper
Date Issued
2023-07-26
Author(s)
Abstract
We document novel stylized facts about the effects of overlapping ownership on profits. We find that overlapping ownership is associated with lower profit margins when corporate governance is bad and in industries prone to softer competition due to tacit collusion. We build a simple dynamic model, where - due to agency frictions - firm managers derive a private benefit from deviating from tacit collusion. We find
that overlapping ownership can increase, decrease, or have no effect on profits, depending on the extent of the agency friction and an industry’s disposition towards softer competition. Our model is consistent with the stylized facts and can help reconcile theory with the mixed effects of overlapping ownership on profit found in the data.
that overlapping ownership can increase, decrease, or have no effect on profits, depending on the extent of the agency friction and an industry’s disposition towards softer competition. Our model is consistent with the stylized facts and can help reconcile theory with the mixed effects of overlapping ownership on profit found in the data.