Edward B. Rock and Daniel L. Rubinfeld ‘Defusing the Antitrust Threat to Institutional Investor Involvement in Corporate Governance’

This paper – available here – criticises arguments for increased antitrust intervention against institutional investors. The paper begins by identifying its target: “a line of new economics research that claims to show theoretically and empirically that concentration of shareholdings in the hands of diversified investors has substantial anti-competitive effects in concentrated markets”, and subsequent legal scholarship that interprets this economic research to mean that the practices of institutional investors infringe competition law, or should, in any event, be subject antitrust rules. The first half of the paper develops a number of methodological criticisms of existing theoretical and empirical analyses of the portfolio strategies adopted by institutional investors. These criticisms are said to put in doubt a number of conclusions regarding the extent to which common ownership makes a difference to competition in the market – and, by extension, the justifications for antitrust intervention against institutional investors. Part II then analyses the legal implications of the economic evidence, and concludes that holdings by diversified…