Testing the Theory of Common Stock Ownership

We test if an increase in common ownership changes future expected profits with an event study method. We collect instances of stocks entering the S&P500 and identify their product market competitors. We measure changes in institutional and common ownership (with product market rivals) and find that entering firms experience a significant increase in both. We measure the stock returns of the entrants' product market rivals upon the entry news. We find that increases in common ownership (driven by the whole vector of ownership similarity) cause increases in stock returns, consistent with a hypothesis that common ownership raises profits