Common Ownership and Voluntary Disclosure

Investors increasingly hold stock in multiple firms that compete in the same product market (“common ownership”). Taking market share from peers no longer maximizes shareholder value under common ownership, which incentivizes managers to implement less competitive strategies (Azar, 2016). Consistent with the existence of a negative relation between competition and disclosure, we predict and find that common ownership is positively associated with voluntary disclosure. We also show the result is diminished in industries for which there are direct communication channels, industries with low barriers to entry, industries facing high demand uncertainty, and industries containing dissimilar firms. Lastly, we examine an exogenous shock to common ownership to support our assertion that common ownership causes changes to disclosure behavior. Our paper contributes to the literature regarding the influence of shareholder preferences on disclosure, suggesting there are spillover effects from common ownership to other shareholders in the form of increased disclosure.