The Economic Consequences of Common Ownership Along the Supply Chain

Anna M. Costello, Professor of Accounting
Christopher R. Stewart, Assitant Professor and William S. Fishman Faculty Scholar

Our study aims to be the first to document the extent of vertical common ownership along the supply chain. Prior work focuses on the consequences of horizontal common ownership - i.e. ownership of industry rivals by the same institutional investor - and largely concludes that common ownership is costly in terms of reducing competition. The impact of common ownership of vertically, rather than horizontally, linked firms may provide novel insights relative to this prior integration due to aligned incentives and a reduction in hold-up costs. Alternatively, it is possible that the costs of vertical common ownership are similar to the costs of horizontal ownership - i.e., increasing anticompetitive effects. The goal of our paper is twofold. First, we will document the extent of common vertical ownership along the supply chain using a proprietary dataset of the buyer-supplier network of firms in the US. Our plan is to investigate the common ownership by both institutional investors and private equity (PE) firms, since much of the buyer-supplier network includes private companies. Second, we will examine the impact of vertical common ownership on supply chain outcomes. Our data allow us to explre trade volume and trade credit, and we have applied to the BLS to obtain access to producer pricing. Thus, we will provide evidence on the costs and benefits of vertical common ownership. Another output of our study will be to provide data on vertical ownership for use by other researchers.