N°26-63: Common Ownership and Firm Profitability

We generalize the theory of common ownership from industry classifications to firm networks, using text-based product similarity to define granular, overlapping, and asymmetric competitive neighborhoods. Across US public firms from 1999 to 2019, we find a statistically robust positive relationship between price-cost margins and the Modified Herfindahl-Hirschman Index Delta that captures ownership concentration within these neighborhoods. To ensure that the common-ownership channel is not confounded by simultaneous variation in market shares, we apply a varying-coefficient model that isolates the common-ownership component from the mechanical co-movement with quantity-share concentration.