The influence of institutional investors on the commercial policy of portfolio companies

Abstract

ABSTRACT The antitrust scholarship raised concerns on the potential anticompetitive effects of large institutional investors’ common minority shareholdings in competing firms. Such concerns hinge on whether such common shareholders have the ability to influence the commercial policy of their portfolio companies. As investment managers with passive investment strategies often hold such positions, these concerns are exacerbated by the increase in the share of public equity held by such entities. This article attempts to frame exhaustively the agency problems peculiar to investment managers, highlighting the requirement for accessible means and significant incentives for them to credibly be held to exercise influence over the commercial policy of their portfolio companies, and, ultimately, shows that the evidence that such means and incentives are available is limited. As a result, this article argues that “common ownership” concerns require further analysis of the mechanics through which influence is transmitted to portfolio companies.