Finance Seminar - joint with SAFE
Speaker: Martin Schmalz, University of Michigan
Topic: "Competitive Effects of Common Ownership: Evidence from the Airline Industry"
Abstract: We provide evidence that common ownership of firms by diversified institutions affects pricing in the product market. We identify the effect of common ownership on airfares by exploiting differences across airline routes in the evolution of common ownership over time, which allows controlling for market-carrier and year-quarter fixed effects, and for time-varying market characteristics. To address reverse causality and other endogeneity concerns, we use an instrumental variables strategy that exploits the variation in common institutional ownership across routes generated by BlackRock's acquisition of Barclays Global Investors in 2009. Our results call attention to a hidden social cost -- reduced product market competition -- that accompanies the private benefits of shareholder diversification and good governance.