This is a new file that records ideas and past literature on the equity market.
- The basic idea is that past literature has shown that (equity) common ownership can faciliate the internalisation of externalities created by participating corporate governance and thus reduce the within-industry, product market competition. What is the general impact of common ownership on the debtholders and the debt market?
- From the corporate governance perspective, the improved corporate governance should faciliate the wealth creation process of the firm by mitigating agnecy issues, and also, potentially, reduce the
- On the other hand, the equity-debt conflict still exists and it is hard to argue why the existence of CO will attenuate or even mitigate the conflict. Meanwhile, conditional there is an impact, it is hard to argue whether the conflict will be amplified or mitigated.
- Therefore, this seems to be an interesting question to look into and examine what is this spillover effect from the equity market to the debt market.
- This also links to Becker and Ivashina (2020) about how the creative disruption impact the credit market. While they argue that new entrants have a negative impact on the incumbents’ credit risk, my story may show that the common onwership after the IPO actually helps incumbents with high CO to mitigate the impact. More broadly speaking, this will also link to idea about incumbents and CVCs.
- The identification strategy is to use the Bernstein instrument (Bernstein, 2015) to see how existing firms shocked by the successful and unsuccessful IPO companies react?
- The logic goes as this: Assume there are only two industries A and B and each industry has two firms a and b. There will be in total four firms in the current economy ${A_a, A_b, B_a, B_b} \in \Omega_0$. Now there is a new disruptor in industry A, called firm $A_e$, seeks an IPO at time $t=1$.
- The first 13F should reveal the change in the common ownership structure across the pair $(A_a, A_e)$ and $(A_b, A_e)$, which is not there before the IPOs. Using the IPO as an exogenous shock, we should be able to analyse its impact on various firm outcomes and also the loan performance of incumbents, namely $A_a$ and $A_b$ in the market.
Literature:
- He, J. (Jack), Huang, J., 2017. Product Market Competition in a World of Cross-Ownership: Evidence from Institutional Blockholdings. The Review of Financial Studies 30, 2674–2718. https://doi.org/10.1093/rfs/hhx028