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Empirical Findings In Need Of A Theory—In Defense Of Institutional Investors, Ittai Paldor

Loyola of Los Angeles Law Review

In recent years theorists have argued that institutional investors’ diversification harms competition. The theory is that when portfolio firms are cross-owned by institutional investors, managements compete less vigorously than they would have but for the cross ownership. The theory was bolstered by several empirical studies. The supporting empirical studies have been contested on methodological grounds, and some recent empirical studies make contradicting findings. But the theory of competitive harm itself is still considered persuasive. The federal antitrust agencies and competition agencies across the globe have begun to take action against instances of cross ownership based on this theory, in what …