Tuesday, August 18, 2015

Who is afraid of BlackRock?

MASSA Massimo, SCHUMACHER David, WANG Yan
Read the working paper
INSEAD Working Paper 2015/60/FIN

We use the merger of BlackRock with Barclays Global Investors (BGI) as an event to study how changes in ownership concentration affect the investment behavior of financial institutions and the cross-section of stocks worldwide. We find that other institutional investors re-balance away from stocks that experience a large increase in ownership concentration due to the pre-merger portfolio overlap between BlackRock and BGI. Over the same period, institutional ownership migrates towards comparable stocks not held by BGI funds prior to the merger. The re-allocation of institutional ownership has price impact. Stocks that experience large increases in ownership concentration due to the merger experience negative returns that do not fully revert. These stocks also become permanently less liquid and less volatile. We argue that the merger is exogenous with respect to the characteristics of the stocks held by BGI funds prior to the merger. This allows for a causal interpretation of the results and points to strong strategic complementarities associated with large, global asset management firms that may lead to financial fragility. We speculate that financial fragility is driven by fear of future, possibly idiosyncratic firm events and not necessarily by actual firm events per se.