Innovation: The Bright Side of Common Ownership?

44 Pages Posted: 16 Jan 2018 Last revised: 25 May 2021

See all articles by Miguel Anton

Miguel Anton

University of Navarra, IESE Business School

Florian Ederer

Yale School of Management; Yale University - Cowles Foundation

Mireia Gine

IESE Business School, University of Navarra ; The University of Pennsylvania

Martin C. Schmalz

University of Oxford - Finance; CEPR; CESifo; European Corporate Governance Institute (ECGI)

Date Written: March 19, 2021

Abstract

A firm has inefficiently low incentives to innovate when other firms benefit from its innovative activity and the innovating firm does not capture the full surplus of its innovations. We provide conditions under which common ownership of firms mitigates this impediment to corporate innovation. Common ownership increases innovation when technological spillovers are sufficiently large relative to product market spillovers. Otherwise, the business stealing effect of innovation dominates and common ownership reduces innovation. Empirically, product market spillovers (as measured by Jaffe/Mahalanobis proximity in product market space) decrease the effect of common ownership on innovation inputs and outputs, whereas technology spillovers (proximity in patent space) increase the effect. The sign and magnitude of the relationship between common ownership and corporate innovation varies considerably across the universe of firms depending on the relative strength of product market and technology spillovers. When product market spillovers are relatively large, an increase from the 25th to the 75th percentile of common ownership is associated with a decrease of -8.4% in citation-weighted patents. But when technology spillovers are relatively large, the same increase in common ownership is associated with an increase of +12.5% in citation-weighted patents. Our results inform the debate about the welfare effects of increasing common ownership among U.S. corporations.

Keywords: common ownership, competition, innovation, R&D

JEL Classification: O31, L20, L40

Suggested Citation

Anton, Miguel and Ederer, Florian and Gine, Mireia and Schmalz, Martin C., Innovation: The Bright Side of Common Ownership? (March 19, 2021). Available at SSRN: https://ssrn.com/abstract=3099578 or http://dx.doi.org/10.2139/ssrn.3099578

Miguel Anton

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

Florian Ederer

Yale School of Management ( email )

165 Whitney Avenue
New Haven, CT 06511
United States

HOME PAGE: http://faculty.som.yale.edu/florianederer/

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

Mireia Gine

IESE Business School, University of Navarra ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

The University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

Martin C. Schmalz (Contact Author)

University of Oxford - Finance ( email )

United States

CEPR ( email )

London
United Kingdom

CESifo ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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