Common institutional ownership linked to less aggressive business strategies in Chinese firms

Background and Motivation

In recent years, the rise of common institutional ownership—where large institutional investors hold significant shares in multiple competing firms within the same industry—has sparked intense debate among scholars and regulators. While some argue it fosters information sharing and improves governance, others warn it may reduce competition and encourage collusion. Despite growing attention, little research has examined how this ownership structure affects overall business strategy. This study investigates whether common institutional ownership makes companies more or less aggressive in their strategic pursuits, such as innovation, market expansion, and growth.

Methodology and Scope

The research analysed data from Chinese A-share listed companies between 2009 and 2023, using multiple measures of common institutional ownership and a composite indicator of business strategy aggressiveness. The strategy score captured six dimensions: innovation tendency, market expansion, growth, production efficiency, organisational stability, and capital intensity. The team employed rigorous statistical methods to address potential biases and ensure reliability, including instrumental variable analysis, propensity score matching, and placebo tests.

Key Findings and Contributions

The study reveals that common institutional ownership significantly reduces business strategy aggressiveness. A one standard-deviation increase in common ownership leads to a 4.30% to 7.00% decline in strategic aggressiveness, depending on the measure used. This effect is driven by anti-competitive incentives: common owners seek to soften competition among their portfolio firms to preserve monopoly profits and maintain a “quiet life.”

The dampening effect is stronger when:

• Common investors have long-term horizons
• Firms are state-owned
• Industries are non-technology-intensive
• Regions have lower levels of legalisation

The research contributes to the literature by linking ownership structure to broad strategic behaviour, moving beyond earlier studies that focused only on specific corporate actions. It also highlights how institutional differences in emerging markets like China shape the impact of common ownership.

Why It Matters

The findings shed light on an important but understudied channel through which common ownership may influence market dynamics—not just through pricing or innovation alone, but through holistic strategic postures. In economies with less mature regulatory systems and a high presence of state-owned enterprises, common ownership may particularly encourage strategic conservatism. This has implications for antitrust policy, corporate governance, and competitive fairness in developing markets.

Practical Applications

• For regulators, the study offers evidence that common ownership can curb competitive intensity, supporting the need for updated antitrust frameworks.
• For companies, understanding how shared ownership influences strategic freedom can inform governance and investor-relations practices.
• For investors, the results highlight a potential trade-off: common ownership may stabilise returns but also reduce strategic ambition and long-term industry vitality.

These insights are especially relevant for emerging markets with similar institutional landscapes, such as India and Brazil.

Discover high-quality academic insights in finance from this article published in China Finance Review International. Click the DOI below to read the full-text!