The Causal Mechanisms of Horizontal Shareholding
The Harvard Law School Forum on Corporate Governance and Financial Regulation 2019-05-23
As I have shown in another paper, repeated empirical studies confirm that, in concentrated markets, higher levels of horizontal shareholding make anticompetitive effects more likely. Nonetheless, some critics argue that we should delay enforcement action until we have more proof on the causal mechanisms by which horizontal shareholders influence firm behavior. In my new paper, The Causal Mechanisms of Horizontal Shareholding, I show that these critiques are mistaken.
The Ample Evidence on Causal Mechanisms
Institutional investors now cast 93% of shareholder votes at S&P 500 firms and are increasingly diversified in ways that give them horizontal shareholdings. The weight that firms put on the profits of other firms can range from 0% (if the firms are totally separately owned) to 100% (if one firm 100% owns the other). Horizontal shareholdings have risen so much that by 2017 the average weight that an S&P 500 firm put on the profits of other firms in their industry was 75%. There are multiple mechanisms by which horizontal shareholders use this power to influence firms.