The Effect of Common Ownership on Profits: Evidence From the U.S. Banking Industry

Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C. The Effect of Common Ownership on Profits: Evidence From the U.S. Banking Industry Jacob Gramlich and Serafin Grundl 2018-069 Please cite this paper as: Gramlich, Jacob, and Serafin Grundl (2018). “The Effect of Common Ownership on Profits: Evidence From the U.S. Banking Industry,” Finance and Economics Discussion Series 2018-069. Washington: Board of Governors of the Federal Reserve System, https://doi.org/10.17016/FEDS.2018.069. NOTE: Staff working papers in the Finance and Economics Discussion Series (FEDS) are preliminary materials circulated to stimulate discussion and critical comment. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors. References in publications to the Finance and Economics Discussion Series (other than acknowledgement) should be cleared with the author(s) to protect the tentative character of these papers.

The Effect of Common Ownership on Profits: Evidence From the U.S. Banking Industry Jacob Gramlich and Serafin Grundl † September 7, 2018 Abstract Theory predicts that “common ownership” (ownership of rivals by a common shareholder) can be anticompetitive because it reduces the weight firms place on their own profits and shifts weight toward rival firms held by common shareholders. In this paper weuseaccountingdatafromthebankingindustrytoexamineempiricallywhethershifts in the profit weights are associated with shifts in profits. We present the distribution of a wide range of estimates that vary the specification, sample restrictions, and assumptions used to calculate the profit weights. The distribution of estimates is roughly centered around zero, but we find statistically significant estimates in either direction in some cases. Economically, most estimates are fairly small. Our interpretation of these findings is that there is little evidence for economically important effects of common ownership on profits in the banking industry. *Preliminary. Please ask to cite. Comments Welcome.* JEL Codes: L40, L20, L10, G34, G21 Keywords: Common Ownership, Competition, Profits, Banking †BoardofGovernorsoftheFederalReserveSystem,jacob.gramlich@frb.gov,serafin.j.grundl@frb.gov. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the staff, by the Board of Governors, or by the Federal Reserve Banks. Rebecca Jorgensen, Nadia Wallace, Meher Islam, and Helen Willis provided outstanding research assistance. 1

1 Introduction Several recent empirical papers have estimated the competitive effects of common ownership – ownership of rivals by a common shareholder. Azar, Schmalz, and Tecu (2016) conclude that common ownership increased prices in the airline industry by relating prices to concentration measures that account for common ownership. Azar, Raina, and Schmalz (2016) report similar findings for the banking industry. Gramlich and Grundl (2017) use an alternative methodology to estimate the competitive effects, and in preliminary estimates find mixed signs and economically small effects for both prices and quantities in the banking industry. Kennedy, O’Brien, Song, and Waehrer (2017) presentsimilarestimatesfortheairlineindustryandpreliminaryestimatesfromastructural model and conclude that there is no evidence of anticompetitive effects.1 Dennis, Gerardi, and Schenone (2017) use a similar methodology as Azar, Schmalz, and Tecu (2016), and also conclude that there is no effect of common ownership on prices in the airline industry.2,3 The model underlying these papers (O’Brien and Salop (2000)) predicts anticompetitive effects of common ownership as follows: If managers maximize the payoffs of their shareholders then they maximize a weighted sum of their own profits and of the profits of their rivals that are held by common shareholders. Hence, common ownership reduces the weight firms place in their objective function on their own profits and instead shifts weight to commonly-held rivals. This reduces competition among firms and therefore increases prices and reduces quantities. Thus, theory predicts anticompetitive effects of common ownership due to shifts in profit weights. The empirical literature has so far mostly focused on the effects of common owner- 1See Azar, Schmalz, and Tecu (2017) for a reply to this paper. 2This conclusion has been challenged by Martin Schmalz, arguing that Dennis, Gerardi, and Schenone (2017) actually report anticompetitive effects of common ownership for large routes. 3The findings of anticompetitive effects of common ownership have received considerable attention fromeconomists,legalscholars,competitionauthorities,policymakersandrepresentativesoftheasset management industry. The OECD held a discussion on the issue with economists, legal scholars, representatives of the asset management industry, and the US Department of Justice. Commentators have noted not only implications for antitrust and the regulation of the asset management industry, buthavealsopointedoutlinkstotheongoingdebatesaboutrisingprofitsharesandwealthinequality. These findings have also led to policy proposals, some of which are fairly far reaching. Elhauge (2016) recommends antitrust enforcement actions to reduce common ownership in instances where it can be shown to have anticompetitive effects, though Rock and Rubinfeld (2017) challenges the legal analysis in Elhauge (2016). Posner, Scott Morton, and Weyl (2016) propose to limit common ownership by limiting holdings in an industry by an institutional investor to 1% of the industry, or alternatively to a single firm. Scott Morton and Hovenkamp (2017) discuss how current antitrust law applies to the common ownership issue. 2

ship on prices, and to a lesser extent on quantities. In this paper we estimate the effect of common ownership on profits. Specifically, we investigate whether the shifts in the profit weights predicted by the theory are associated with shifts in profits. Our paper is most closely related to Azar (2011) and Panayides and Thomas (2017), which are cross-industry studies on the effect of common ownership on profits. Azar (2011) finds that common ownership is associated with higher markups. Panayides and Thomas (2017) find that common ownership is associated with increased profitability, but not with higher output prices and conclude that the effect is driven by reduced expenditures. Moreover they find that reduced expenditures are not driven by reduced input prices but by lowered investment, which suggests lowered non-price competition. In this paper we take a different approach than Azar (2011) and Panayides and Thomas (2017) by studying the effect of common ownership on profits within an industry rather than across industries. We argue that such a within-industry approach is particularly useful in industries such as banking where a large number of competitors are not publicly traded and therefore have low levels of common ownership and experienced no increase in common ownership. These privately owned firms serve as a useful control group for the publicly traded firms that have high levels of common ownership and experienced large increases of common ownership in the previous decades. In banking, the model-implied weight on own profits among publicly traded firms is typically far below 10% and was more than twice as high in the year 2001 than in the year 2016. The model-implied weight on profits among private banks however is typically 100% and has not declined since 2001. Loosely speaking, we ask whether the shift in profit weights among publicly listed banks decreased their share of industry profits at the expense of private banks. We also study whether within the group of listed banks profits shifted from banks with less weight on their own profits to banks with higher weight on their own profits. Why Banking? We estimate the effect of common ownership on profits in the banking industry for several reasons. First, it is one of the two industries for which anticompetitive effects of common ownership have been reported (Azar, Raina, and Schmalz (2016)). Second, there are many publicly listed banks, which generate substantial variation in common ownership. There are more than 400 publicly listed banks in the U.S., which is much more than for example the number of publicly listed airlines. In addition there is an even larger number of banks that is not publicly traded, and therefore did not experience an increase of common ownership through large institutional investors, 3

which serves as a useful control group. Third, and perhaps most importantly, standardized accounting data is available not only for publicly listed banks but also for private banks. Bank regulators restrict how banks report their income statements and balance sheets, which makes the data comparable across banks. In many other industries private companies either play no important role or accounting data is either not available or difficult to compare across firms. There are also disadvantages of studying this question in the banking industry. Perhaps most importantly, the financial crisis and subsequent regulatory changes had large effects on bank profits that are unrelated to the competitive effects of common ownership. We try to address this problem in some of our estimates by restricting the sample period to either the pre-crisis or the post-crisis years. Data Weuseaccountingdatafromregulatoryfilingstomeasurebankprofits. Economists are often reluctant to use data on accounting profits because they can differ from economic profits. We believe that studying data on accounting profits is still informative for our purposes as long as accounting profits co-move with economic profits so that changesinaccountingprofitsareinformativeaboutchangesineconomicprofits. Wealso believe that accounting profits are comparable across banks because banks are highly restricted by regulators in how they report income statements and balance sheets.4 Our data set covers the more than 6,000 banks in the U.S. each quarter from 2001 to 2016, which results in approximately 400,000 bank-quarter observations. Specifications, Sample Restrictions and Variable Definitions As is commonly thecaseinempiricalresearchtherearemanyplausiblespecifications,samplerestrictions and variables definitions. In this paper we do not follow the common approach, which is to present findings for a “baseline case”, i.e. a particular specification, sample restriction and variable definition, and perhaps several robustness checks. Instead, we obtained several hundred estimates for different specifications, sample restrictions and different ways to calculate the profit weights and report the distribution of these estimates. We discuss how the distribution of estimates varies by specification, sample restriction or profit weight definition. This approach allows the reader to get a more complete picture of the range of plausible estimates. In the main text of this paper we present the distribution of estimates, but in the Online Appendix we show each estimate we 4Notice also that the payouts of shareholders, especially the common owners, are restricted by regulators, partly based on accounting measures. 4

obtained. This allows the readers to look up particular estimates they are interested in. We believe that this approach is useful for this paper because different researchers have arrived at different conclusions regarding the competitive effects of common ownership even if they have used similar methodologies and data sets. We also hope that similar approaches to presenting empirical results become more common in economics in general. We estimate the effect of the weight a bank places on its own profits on three dependent variables: net income, return on equity (ROE) and return on assets (ROA). For each of these three variables we also consider a transformation of the variable into percentiles by quarter. For example the bank with the highest ROE in some quarter has ROE percentile 100 and the bank with the lowest ROE has percentile 0. This transformation makes magnitudes of estimates for the three outcome variables more easily comparable and reduces the effect of “outliers”, especially during the financial crisis. We consider six different specifications that vary the fixed effects and observable characteristics we control for, twelve different sample choices, that vary the time period and the set of banks that are included, and lastly four different ways to calculate the profit weights. This results in 6 ∗ 12 ∗ 4 = 288 estimates for each of the six outcome variables. Preliminary Findings We focus the discussion of findings on the estimates for the percentile transformations of the outcome variables. The distribution of point estimates for the effect of own-profit weight on profits (net income), ROE, and ROA are roughly centered around zero. The estimated effect of a 1 pp increase in the weight on own profits ranges from -0.47 pp to +0.27 pp, with a median of -0.03 pp for net income, from -0.44 pp to +0.49 pp, with a median of -0.002 pp for ROE, and from -0.41 pp to +0.41 pp with a median of -0.009 pp for ROA. Some of these estimates that are large in magnitude are imprecise, and the range of estimates shrinks considerably if we focus on estimates that are statistically significant at the one percent level.5 In this case the 5Asweobtainmanyestimatesofthesameeffectthisraisestheissueofthemultiplecomparisonsor themultipletestingproblemwhenwetherangeandthedistributionofestimatesthatareindividually “statisticallysignificant”. Onewaytointerpretthisdistributionisasfollows: Supposedifferentstudies pickoneofthe288estimatesatrandom. Ifthestudyfindsastatisticallysignificanteffectthestudyis published. Ifnot,thestudyisshelvedordoesnotgetthroughthepublicationprocess. Asurveypaper reporting the estimated effects in the literature would then report this distribution of statistically significant effects. 5

estimates range from -0.47 pp to +0.09 pp, with a median of -0.09 pp for net income, from -0.44 pp to +0.08 pp, with a median of -0.04 pp for ROE, and from -0.41 pp to +0.15 pp with a median of -0.03 pp for ROA. We also show how the distribution of estimates varies by specification, sample and profit weight calculation. In our view, the magnitude of the positive and statistically significant estimates is relatively small. For example, between 2001 and 2016 the average weight placed on own profits by listed banks has fallen by roughly 5 pp due to an increase in common ownership. Even the largest statistically significant estimates we find imply that a 5 pp decreaseinweightonownprofitsisassociatedwithashiftinthenetincomedistribution by 0.45 pp, a shift in the ROE distribution of 0.4 pp and a shift in the ROA distribution by 0.75 pp. Direct Shareholders and Active Investors We also obtain some preliminary estimates that only rely on common ownership through either “Direct Shareholders” or through “Active Investors”. “Direct Shareholders” - such as Berkshire Hathaway - are the ultimate owners of shares as opposed to asset managers - such as Vanguard or Fidelity - that manage shares owned by their clients.“Direct Shareholders” may benefit more from increasing share prices (as a consequence of decreased competition) than asset managers that typically earn a fixed small percentage of assets under management. “Active Investors” are investors that try to pick winning stocks, as opposed to “passive investors” that simply replicate an index. The idea is that index funds compete mostly on fees. It is unclear how strong the incentives of an index fund manager are to reduce competition among portfolio firms, given that improved performance of the index would also improve the performance of all all competing index fund managers, which replicate the same index. Active asset managers however, who hold a unique portfolio, could outperform other active asset managers if their portfolio firms compete less and thereby attract new clients. Perhaps surprisingly, the estimates for “Direct Shareholders” or “Active Investors” are similar to the estimates for all investors. These estimates are preliminary because we only take the largest “Direct Shareholders” and the largest “Active Investors” into account, and we hope to eventually incorporate more comprehensive classifications. Identification and Endogeneity Which variation in the data identifies the coefficient on the weight firms place on their own profits? The answer to this question 6

depends on the sample restrictions and the specification. The most basic case relies on comparisons of unlisted and listed banks: Unlisted banks have typically no common owners with other banks and therefore place 100 percent weight on their own profits throughout the sample period. On the other hand, listed banks share common owners and the model-implied weight on their own profits is surprisingly low (typically below 10 percent). Moreover, for listed banks common ownership became more prevalent between 2001 and 2016, so the weight these banks placed on their own profits in 2001 is about four times higher than in 2016. This variation is used in some of our estimates. In the simplest specification without bank fixed effects we ask whether banks that place more weight on their own profits make higher profits.6 In specifications with bank fixed effects, we ask whether the decrease in weight on own profits among listed banks was associated with a reduction in their profits. We do not try to instrument for the profit weights in this version of the paper. The conclusions of the existing literature that finds anticompetitive effects of common ownership do not rely heavily on whether profit weights were treated as exogenous or not. Moreover, we believe that a large portion of the variation in profit weights and the secular increase in common ownership are driven by factors that are plausibly exogenous. The studies by Azar, Schmalz, and Tecu (2016) and Azar, Schmalz, and Tecu (2016) find anticompetitive effects of common ownership in OLS and IV specifications. In Gramlich and Grundl (2017) the OLS and IV estimates for the same subsample do not differ substantially. Kennedy, O’Brien, Song, and Waehrer (2017) find positive and statistically significant effects of common ownership with OLS and negative and significant effects in their IV approach. This suggests that treating the profit weights as exogenous could bias our findings towards finding anticompetitive effects of common ownership. The secular trend towards increased common ownership is largely driven by the trend towards passively investing asset managers, which is plausibly exogenous. Roadmap The remainder of this paper is structured as follows. In section 2 we discuss the model by O’Brien and Salop (2000) and show in a numerical example how shifts in profits weights shift lead to shifts in profits. In section 3 we discuss the data and show some descriptive statistics on profit weights and profits for listed and unlisted banks. Section 4 discusses the range of specifications, sample restrictions and variable 6Aswediscussinmoredetailbelow,theseestimatestypicallyfindafairlylargenegativeassociation between the weight on own profits and profits, because listed banks make higher profits than unlisted banks. 7

definitions we consider and section 5 presents the findings. In section 6 we obtain estimates if only common ownership through “Direct Shareholders” or through “Active Investors” is taken into consideration. Section 7 concludes. Tables that are not included in the main text can be found in Appendix A. 2 Common Ownership Model The model by O’Brien and Salop (2000) is the basis for much of the empirical research on the competitive effects of common ownership.7 In this model managers maximize a weighted sum of their shareholders’ payoffs: (cid:88) (cid:88) γ β π (1) ij ik k i k Managers are indexed by j and k, and shareholders by i. γ is owner i’s “control share” ij of firm j, which is the weight that manager j assigns to owner i’s payoff. For each firm (cid:80) j, the control shares add up to one γ = 1. β is owner i’s ownership share of firm i ij ik k, which is the percentage of firm k’s profits, π , which accrue to owner i. For each k (cid:80) firm k, the ownership shares add up to one β = 1. It natural to assume that γ is i ik ij a non-decreasing function of β : as i’s ownership of firm j increases, manager j should ij place weakly more weight on i in its objective function. Generally, γ likely depends ij not only on β , but the whole ownership structure of firm j. For example, a ownership ij share of β = 0.49 might result in almost full control if all other shareholders are small, ij and in almost no control if the remaining 51% are held by a single shareholder. Much of the empirical literature assumes that γ = β , which is called the proportional control ij ij assumption. (cid:80) Afterdividingby γ β , managerj’smaximizationproblemin1canberewritten i ij ij as follows: (cid:80) (cid:88) γ β Π = π + i ij ik π (2) j j (cid:80) k γ β k(cid:54)=j i ij ij (cid:88) = w π + w π (cid:101)jj j (cid:101)jk k k(cid:54)=j (cid:80) (cid:80) The profit weights w = γ β / γ β measure the weight firm j places on the (cid:101)jk i ij ik i ij ij 7Large parts of this model section are identical to parts of the model section in Gramlich and Grundl (2017). 8

profits of rival k, relative to its own profits w = 1. (cid:101)jj An important property of the profit weights is that they are not symmetric in the sense that in general w (cid:54)= w .8 This is generally the case even if all common owners (cid:101)jk (cid:101)kj of j and k have equal shares in both firms, because the weights also depend on the size of the ownership shares of the non-common owners. To see this consider an example with just two firms that have a single common owner who holds 10% of both firms. First suppose that the remaining 90% of both firms are held by by single investors, then w = w ≈ 0. Now suppose that the 90% shareholder of firm 2 is split into many (cid:101)12 (cid:101)21 equal sized shareholders who each only hold a small share of firm 2, then w starts to (cid:101)21 increase whereas w ≈ 0. This is because the 90% ownership in firm 1 by undiversified (cid:101)12 shareholders is concentrated in a single shareholder whereas is unconcentrated and spread across many shareholders for firm 2. For our purposes it will be more convenient to work with weights that add up to (cid:80) (cid:80) one. Divide equation (1) by γ β to obtain i k ij ik (cid:80) (cid:80) i γijβ ik π (3) k (cid:80) i (cid:80) k γijβ ik k (cid:80) = w π k jk k (cid:80) where w = 1. k jk In this paper we estimate whether changes in w , the weight firm j places on its jj own profits, and (cid:80) w , the total weight weight j(cid:48)s rivals place on j’s profits are k(cid:54)=j kj associated with changes in the reported profits. 2.1 A Numerical Example Here we present a simple numerical example illustrating how prices, quantities and profitschangedependontheprofitweightsinamodelofdifferentiatedproductBertrand competition. In the example there are three banks j = 1,2,3. Banks 1 and 2 are listed on the stock market and therefore have common owners whereas bank 3 is private. Thus w = w = 0, w = w = 0, but w and w can be positive. The banks have (cid:101)31 (cid:101)32 (cid:101)13 (cid:101)23 (cid:101)12 (cid:101)21 8The fact that w (cid:54)= w means that the common ownership model makes very specific testable (cid:101)jk (cid:101)kj predictions at the level of the ordered firm pair: For example one could test whether firm j starts to compete less aggressively with firm k as w increases while controlling for w and for firm pair fixed (cid:101)jk (cid:101)kj effects. 9

constant marginal costs c . Demand is a simple logit demand system where the prices j are the only product characteristics. InFigure1webeginbyshowinghowprices,quantitiesandprofitschangeascommon ownership among banks 1 and 2 increases such that w and w increase jointly. This (cid:101)12 (cid:101)21 symmetric case can be viewed as a partial merger among the two banks. The demand system is symmetric and the banks have identical marginal costs. Figure 1a shows that the prices of banks 1 and 2 increase as they are now competing less aggressively. The prices of bank 3 also increase as it faces two less aggressive competitors now, but less so than the prices of banks 1 and 2. Figure 1b shows that the quantities of banks 1 and 2 decrease whereas the quantity of bank 3 also increases. As the prices of all banks increase the quantity of the outside good increases. Figure 1c shows that the profits of all three banks increase as competition in the industry becomes less aggressive. Importantly, the profits of banks 1 and 2 increase much less than the profits of bank 3. This is shown more clearly in Figure 1d, which shows the difference between the profits of a bank and average industry profits. As w (cid:101)12 and w the profits of banks 1 and 2 fall below average industry profits, whereas the (cid:101)21 profits of bank 3 rise above average industry profits. Next, consider Figure 2. Here w and w do not increase jointly. Instead w (cid:101)12 (cid:101)21 (cid:101)12 increases and w = 0.5 is fixed. Demand and costs are symmetric as in the previous (cid:101)21 example. Figure 2a shows that now the price of bank 1 increases a lot, whereas the prices of banks 2 and 3 increase only slightly. Accordingly, the quantity of bank 1 decreases, whereas the quantities of banks 2 and 3 and the outside good increase (Figure 2b). Figure 2c, shows that the profits of banks 2 and 3 increase. Notice that the profit of bank 1 initially increases slightly as w increases and then decreases. Why is this (cid:101)12 the case? Intuitively, increasing w has two effects: First, it lowers competition among (cid:101)12 the banks. Second, for a given level of competition it lowers how much of the industry profits go to bank 1. The profit of bank 1 is not monotone in w because initially the (cid:101)12 first effect dominates and later the second effect. In Figure 2d the deviation from average industry profits is shown. Relative to the industry average, the profits of banks 2 and 3 are increasing whereas the profits of bank 1 is dereasing. This latter shift in profits is the one we are trying to find in the data: Do the profit of a bank decrease relative to the average profits in the industry as it places more weight on the profits of its rivals and less weight on itself? 10

0.5 0.48 0.46 0.44 0.42 0.4 0.38 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 ecirP 0.4 Price: Firm 1/2 Price: Firm 3 0.35 0.3 0.25 0.2 0.15 0.1 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 (a) Prices ytitnauQ Quantity: Firm 1/2 Quantity: Firm 3 Quantity: Outside Good (b) Quantities 0.115 0.11 0.105 0.1 0.095 0.09 0.085 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 tiforP 12 Profit: Firm 1/2 Profit: Firm 3 10 8 6 4 2 0 -2 -4 -6 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 (c) Profits tiforP denaemeD 10-3 Profit: Firm 1/2 Profit: Firm 3 (d) Profits - Average Industry Profits Figure 1: These figures show how prices, quantities, profits and the deviation from average industry profits change as w and w increase jointly. (cid:101)12 (cid:101)21 11

0.49 0.48 0.47 0.46 0.45 0.44 0.43 0.42 0.41 0.4 0.39 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 ecirP 0.35 Price: Firm 1 Price: Firm 2 Price: Firm 3 0.3 0.25 0.2 0.15 0.1 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 (a) Prices ytitnauQ Quantity: Firm 1 Quantity: Firm 2 Quantity: Firm 3 Quantity: Outside Good (b) Quantities 0.11 0.105 0.1 0.095 0.09 0.085 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 tiforP 0.01 Profit: Firm 1 Profit: Firm 2 0.008 Profit: Firm 3 0.006 0.004 0.002 0 -0.002 -0.004 -0.006 -0.008 -0.01 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 (c) Profits tiforP yrtsudnI egarevA tiforP Demeaned Profit: Firm 1 Demeaned Profit: Firm 2 Demeaned Profit: Firm 3 (d) Profits - Average Industry Profits Figure 2: These figures show how prices, quantities, profits and the deviation from average industry profits change as w increases whereas w = 0.5 remains constant. (cid:101)12 (cid:101)21 3 Data and Descriptive Statistics 3.1 Data Thedataonbankprofits, equityandassetscomesfromregulatoryfilings. BankHolding Companies (BHCs) with more than $1 billion in assets have to file a Y-9C form. The Y-9C form is consolidated across the different subsidiaries of the BHC.9 For smaller 9Board of Governors of the Federal Reserve System. Consolidated Financial Statements for Bank Holding Companies (FR Y-9C), https://www.ffiec.gov/nicpubweb/nicweb/nichome.aspx. 12

BHCs or banks that are not BHCs we obtain data from the call report, that is filed by all regulated financial institutions. Data on bank ownership comes from the filings of SEC form 13F that are mandatory forinstitutionalinvestorswithmorethan$100minassets.10 Someinvestorsfileseparate 13F forms for their different subsidiaries (e.g. Blackrock). In this case we aggregate the ownership shares across 13F filers. Wedonotobservebankshareholdersthatarenot13Ffilers. Iftheseshareholdersare small individually relative to the observed shareholders they would only have a limited impactontheprofitweights,eveniftheycollectivelyaccountforasubstantialfractionof the ownership for some banks, because in the common ownership model of O’Brien and Salop (2000) shareholders that are individually large have a disproportionate impact on the profit weights. (See Gramlich and Grundl (2017) for a more detailed explanation of this model property.) If the unobserved shareholders are individually large, however, they can have a large impact on the profit weights. This problem may be particularly important for smaller banks and early in our sample period, because the 13F filers only account for a small fraction of the ownership. We try to mitigate this data limitation by controlling for the total 13F ownership share in some of our specifications and by excluding bank-quarter observations for which the 13F ownership share is low in some of our subsamples. 10Thomson Reuters. Institutional Holdings, Wharton Research Data Services, http://wrds.wharton.upenn.edu/. 13

3.2 Descriptive Statistics Table 1: Summary Statistics. The Return on Assets and Return on Equity are annualized. The Capital Ratio, Return on Assets and Return on Equity are expressed in %. Net Income, Total Assets and Total Equity are measured in millions of dollars. Net Income is measured quarterly. mean sd p25 p50 p75 Weight on Own Profits 93.9 23.6 100.0 100.0 100.0 Total Weight Received from Rivals 6.0 28.5 0.0 0.0 0.0 Net Income 6.9 178.7 0.1 0.4 1.1 Return on Assets 1.2 1.6 0.6 1.2 1.9 Return on Equity 12.9 15.9 6.0 11.9 20.3 Capital Ratio (Total Equity / Total Assets) 11.0 5.4 8.5 10.0 12.1 Total Assets 2270.9 44810.9 65.2 139.2 322.8 Total Equity 219.3 4242.3 7.0 14.3 32.1 Observations 401341 Table 1 shows summary statistics for the whole sample. Figure 3 shows that the median weight on own profits (w ) among listed banks has declined substantially and has jj reached about 40% of its 2001 level in 2016, whereas the weight on own profits among private banks remained unchanged. Moreover (not shown on the graph) the level of w jj for the vast majority of listed banks is very low and typically far below 10%. Figure4showshowprofits,ROEandROAforlistedandunlistedbankshaveevolved since 2001. Figure 4a shows the total net income of listed and unlisted banks. With the exception of the financial crisis the total net income of the approximately 500 listed banks exceeds the total net income of the more than 5,000 unlisted banks substantially. In the years before the financial crisis when w for listed banks fell substantially, the jj gap between listed and unlisted banks widened. During the crisis the gap closed before it widened again in the years after the crisis. The relative changes can be seen more easily in Figure 4b where net income is normalized by the 2001 level. Figure 4 also shows how ROE and ROA have evolved. These figures are more difficult to link to the common ownership model by O’Brien and Salop (2000), which doesnotmodeldebt/equitychoicesandassumesthatshareholderscareabouttheprofits of the firms they own.11 The graphs show no clear pattern for ROA, but for ROE we 11If total assets are interpreted as the quantity of firm j then ROA = p −c . This suggests that j j j decreasing w should be associated with increasing ROA . jj j 14

see that listed banks had higher ROE prior to the crisis but the gap closed after the crisis. This can likely be partially explained by regulatory changes after the crisis which increased capital requirement especially for larger banks and restricted some activities with particularly high ROEs. )1002 fo % ni( stiforP nwO no thgieW naideM 001 08 06 04 2001 2004 2007 2010 2013 2016 Year Not Listed Listed Figure 3: Median w (as % of 2001) jj 15

)noillib $ ni( emocnI teN latoT 002 051 001 05 0 05− 2001 2004 2007 2010 2013 2016 Year Not Listed Listed (a) Total Net Income in $B )1002 fo % ni( emocnI teN latoT 003 002 001 0 001− 2001 2004 2007 2010 2013 2016 Year Not Listed Listed (b) Total Net Income (as % of 2001) )% ni( EOR naideM 02 51 01 5 0 2001 2004 2007 2010 2013 2016 Year Not Listed Listed (c) Median ROE )1002 fo % ni( EOR naideM 021 001 08 06 04 02 2001 2004 2007 2010 2013 2016 Year Not Listed Listed (d) Median ROE (as % of 2001) )% ni( AOR naideM 5.1 1 5. 0 2001 2004 2007 2010 2013 2016 Year Not Listed Listed (e) Median ROA )1002 fo % ni( AOR naideM 001 08 06 04 02 2001 2004 2007 2010 2013 2016 Year Not Listed Listed (f) Median ROA (as % of 2001) Figure 4: Profits, ROE and ROA for listed and unlisted banks over time. 16

4 Subsamples, Profit Weights and Specifications We estimate the effect of w on three outcome variables. First, the bank’s profit π , jj j second the return on equity ROE = πj, and third the return on assets ROA = πj. j Ej j Aj One reason to estimate the effect on ROE and ROA in addition to π is that these j j j profitability ratios are more easily comparable across banks of different sizes. We winsorize ROE and ROA by quarter at the 2.5th and 97.5th percentiles to j j reduce the impact of outliers, especially during the financial crisis. We do not winsorize net income, because most observations in the tails of the net income distribution stem fromverylargebanks. Thereforewinsorizingwoulddisproportionallyaffectlargebanks. Consequently outliers, especially during the crisis, can have a large impact on the net income estimates. For all three outcome variables we also consider a quarterly transformation into percentiles: For example, the bank with the highest net income in a quarter has the net income percentile 100 and the bank with the lowest net income has the net income percentile 0. The advantage of this transformation is twofold. First, it makes the effect sizes for the three different outcome variables comparable. Second, for net income, which is not winsorized, it reduces the impact of outliers during the financial crisis, when some banks posted negative net incomes that were much larger in magnitude than the magnitude of net income during “normal times”. There are many plausible regression specifications to estimate the effect of w on jj these outcome variables. Moreover, there are several plausible ways of choosing the subsample of banks and the sample period. Lastly, there are several plausible ways to calculate the profit weights. We obtained estimates for several different specifications, subsamples and ways to calculate the profits weights and present the whole range of estimates we obtained. Subsamples Table 2 shows the twelve different subsamples we consider. The first subsample is the entire dataset, i.e. it contains all banks from 2001 to 2016 and the subsamples 2-12 restrict the sample in various ways, which we discuss in this section. 17

Table 2: Subsamples Banks Years 13F-Ownership Bank-Quarter Restriction Observations 1 All Banks 2001-2016 No 401,341 2 Only Listed Banks 2001-2016 No 24,475 3 All Banks 2001-2007 No 190,023 4 All Banks 2008-2010 No 76,267 5 All Banks 2011-2016 No 135,051 6 All Banks 2001-2016 Yes 379,494 7 Only Listed Banks 2001-2016 Yes 9,751 8 All Banks 2001-2007 Yes 178,742 9 All Banks 2008-2010 Yes 72,199 10 All Banks 2011-2016 Yes 128,553 11 $500m<Assets<$3,000m 2001-2016 No 52,982 12 $500m<Assets<$3,000m 2001-2016 Yes 40,597 Subsamples 2 and 7 contain only listed banks. For unlisted banks, w = 1, whereas jj for listed banks w is substantially smaller. Therefore there is a lot more variation jj of w across banks in the subsamples that contain both listed and unlisted banks. In jj specifications without bank fixed effects the coefficient on w is estimated mainly by jj comparing listed and unlisted banks in the subsamples that contain unlisted banks, whereas for subsamples 2 and 7 we can only use variation within the listed banks. Subsamples 11 and 12 are restricted to banks between $500m and $3,000m in assets. We consider this restriction because listed banks tend to be larger than unlisted banks. There are few listed banks below $500m and few unlisted banks above $3,000m in assets. Subsamples 11 and 12 restrict the sample to the asset size range where the size distributions of listed and unlisted banks overlap. We also vary the sample period. Subsamples 3 and 8 restrict the sample to the precrisis period 2001-2007, subsamples 4 and 8 are restricted to the crisis period 2008-2010 and subsamples 5 and 10 are restricted to the post-crisis period 2011-2016. We consider these subsamples because the financial crisis and subsequent changes in regulation may have affected listed and unlisted banks in systematically different ways. For example it appears that listed banks were more leveraged than unlisted banks before the crisis but this gap closed after the crisis, possibly due to stricter capital requirements. Lastly, we consider a restriction that excludes banks that went public during the sample period. If a bank goes public this can result in a large, sudden decline of w . jj The idea of this restriction is that we do not want to use variation in w that is due to jj 18

decisions of the bank’s management. As this restriction eliminates some within-bank variation of w it leads to much larger standard errors. We implement the restriction in jj a very strict way: We require that if a bank is ever listed during the sample period, then weonlykeepitifthe13Ffilersaccountforatleast5percentofthemarketcapitalization at all times during the sample period. Therefore, this restriction eliminates not only banksthatgopublicduringthesampleperiod, butalsosomelistedbanksthataretaken over and some small listed banks.12 Subsamples 6 to 10 and subsample 12 impose this “13F Ownership Restriction”. Calculating Profit Weights13 The 13F data contains information on holdings by institutional investors with more than $100 million in assets. 13F filers hold more than one half of the public banks. To calculate the profit weights, however, requires the entire ownership structure. We assume that the remaining shareholders are atomistic. Such shareholders have no impact on the objective function of the manager if there is at least one non-atomistic shareholder. We believe that this assumption is a reasonable approximation because most shareholders who are not required to file a 13F form are small compared to the 13F filers. However, if large parts of a firm are held by small undiversified shareholders then even a small amount of common ownership can have a large impact on the profit weights. This is relevant if the 13F filers own only a relatively small share of some publicly traded banks. To address this issue we calculate the profit weights under the assumption that for every bank there is one (unobserved) undiversified shareholder who holds 1% in some specifications. This 1% undiversified shareholder could represent the management of the bank, for example. Azar, Raina, and Schmalz (2016) argue that in the banking industry there is cross ownership in addition to common ownership, because many of the 13F filers are banks. These reported holdings predominantly represent the holdings of the asset management divisions of the banks. If the asset management divisions use their control rights in the interest of the bank they belong to then such holdings should be treated as cross ownership. It could however also be argued that it is the fiduciary duty of the asset 12Forbanksthataretakenoverwesometimesdonolongerrecordanyownershipby13Ffilersinthe last quarter for which we observe balance sheet and income statement information. For small banks that are not contained in the major stock market indices 13F owners sometimes account for less than 5 percent of the market capitalization, especially during the early parts of our sample period. 13The following description of Table 3 is largely identical to the analogous discussion in Gramlich and Grundl (2017). 19

management division to act in the best interest of their customers and therefore they mustusetheircontrolrightsintheinterestoftheircustomers.14 Thisargumentsuggests that the holdings of the asset management divisions should be treated in the same manner as the holding by independent asset managers. Therefore, they do not result in cross ownership, but might result in common ownership. In some specifications we assume that holdings by bank-owned asset managers result in cross ownership and in others we assume it results in common ownership. Table 3 summarizes four different ways in which we calculate profit weights. Table 3: Ways to Calculate Profit Weights 1 % Undiversified Shareholder Cross Ownership 1 Yes No 2 No Yes 3 Yes Yes 4 No No Specifications For each combination of the twelve subsamples (Table 2), six dependent variables, and four ways of calculating profit weights (Table 3) we consider six different specifications. For illustration these specifications are shown in Tables 4 (Net Income), 14 (ROE), and 15 (ROA), and in each we use the first rows of Tables 2 and 3 (i.e. we use the entire sample, assume a 1% undiversified shareholder, and assume no cross-ownership). The standard errors are clustered at the quarter level for all of our estimates. We start with the very basic specification (1), shown in the first columns of Tables 4, 14 and 15, and succesively add more controls in specifications (2)-(6). In specification (1), we simply regress the outcome variable on the weight placed on own profits (w jj or “Ownweight”) and a set of quarterly fixed effects. This specification, therefore uses variation across banks. In Specification (2) we add bank fixed effects. In specifiction (cid:80) (3) we also control for the profit weight the bank receives from rivals ( w or “Rik kj valweight”). In specification (4), we add the total ownership share of 13F filers as a control. We add this control to rule out the possibility that our findings are driven by the fraction of shareholders we observe, rather by the composition of shareholders we observe. Letting j denote a bank and q a quarter, specification (4) is: 14Notice that we treat asset managers as if they act in the best interest of their customers, despite the fact that they don’t actually own the shares, and instead earn fees that are a percentage of assets under management. 20

y = β Ownweight +β Rivalweight +β 13F OwnershipShare +µ +ξ +((cid:15)4) jq 1 jq 2 jq 3 jq q j jq (cid:124) (cid:123)(cid:122) (cid:125) (cid:124) (cid:123)(cid:122) (cid:125) =wjj,q =(cid:80) k w kj,q In specifications (5) and (6), we control for the size of the bank as measured by the size of its balance sheet. Controlling for the size of the balance sheet is problematic, because it is itself an outcome and a choice by the bank. Banks that place higher weight on their own profits may have a greater incentive to grow their balance sheet. Nevertheless, we present results that control for balance sheet size because the estimates in Azar, Raina, and Schmalz (2016) that find anticompetitive effects of common ownership control for bank size. In specification (5) we control for the log of balance sheet size, and in specification (6) we instead include dummies for each decile of the bank size distribution in the quarter. First, consider net income shown in Table 4. In specification (1), we find a negative association betweenOwnweight and net income, which on its face would reject the notion that common ownershp is anticompetitive. This negative association simply reflects the fact that larger banks - which are publicly-listed and therefore have common ownership-havethehighestnetincome. Thereislikelyreversecausalityconcerninthat bankswithhighnetincome(currentlyorinexpectation)decidetoraisecapitalbylisting theirstock. Thisconcernisaddressedwithspecifications(2)-(6)thatincludebankfixed effects and therefore use variation within bank over time.15 In these specifications we find a much smaller negative association between Ownweight and net income. However, we do not find a positive association between Ownweight and net income in any of the specifications. Next, consider ROE shown in Table 14. We find a positive association between Ownweight and ROE in all six specifications. In specification (1) the effect is small and not statistically significant. In specifications (2)-(4) with bank fixed effects the effect size increases to 0.01-0.02 and is statistically significant. Controlling for bank size in specifications (5) and (6) increases the effect size further to 0.02-0.03. What’s the economic significance of these effect sizes? As both Ownweight and ROE are measured in percentage points, an effect size of 0.03 implies that increasing Ownweight by one percentage point increases the ROE by 0.03 percentage points. This is roughly equal to 15Thereversecausalityconcernisstillpresentforbanksthatgopublic(ordelist)duringthesample period. In subsamples 6-10, we therefore exclude these banks. 21

0.25% of the average ROE (12.9) and 0.19% of the standard deviation of ROE (15.9). Lastly, consider ROA shown in Table 14. Here we also find some evidence of a positive association, especially for specifications (5) and (6) that control for bank size. The largest effect size in specification (5) is close to 0.003, which corresponds to about 0.25% of the average ROA (1.2) or about 0.19% of the standard deviation (1.6). Tables 16, 17 and 18 show the estimates if the variables are transformed into percentiles. For net income we find negative effects in specifications (1)-(4) and positive effects in specifications (5)-(6). For ROE and ROA we find mixed results for specifications (1)-(4) and positive effects for specifications (5)-(6). The largest effects sizes we find for each of the three outcome variables are in the range 0.02-0.03. This means that increasing Ownweight by one percentage point leads to a shift in the distribution of about 0.03 percentage points in the distributions of net income, ROE and ROA. Table 4: Net Income. (1) (2) (3) (4) (5) (6) Weight on Own Profits -0.939∗∗∗ -0.0559∗ -0.302∗ -0.146 -0.127 -0.157 (0.0730) (0.0216) (0.142) (0.0835) (0.0805) (0.0906) Total Weight Received from Rivals -0.330 -0.764∗ -0.762∗ -0.591 (0.189) (0.350) (0.350) (0.343) 13F Ownership Share 186.9∗ 182.5∗ 114.2 (70.38) (69.77) (65.57) log(Total Assets) 6.623∗∗ (2.284) Quarter Fixed Effects Yes Yes Yes Yes Yes No Bank Fixed Effects No Yes Yes Yes Yes Yes Asset Decile x Quarter Fixed Effects No No No No No Yes N 401341 401229 401229 401229 401229 401229 Standarderrorsinparentheses ∗ p<0.05,∗∗ p<0.01,∗∗∗ p<0.001 5 Findings Summary of Findings In this section we summarize the different estimates of the Ownweight coefficient, that vary the subsample (Table 2), the ways to calculate profits weights (Table 3), and the specification. As we consider 12 different subsamples, 4 ways to calculate profit weights and six different specifications, we obtain 12 ∗ 4 ∗ 6 = 288 different estimates of the Ownweight coefficient for each of our six outcome variables (net income, ROE, ROA, and within-quarter percentile transformation of 22

each). Regression tables for all estimates can be found in the Online Appendix. Figure 5 shows histograms of the 288 point estimates for each of the six outcome variables. These distributions are also summarized in Table 5. Importantly, Figure 5 andTable5showallpointestimatesregardlessofwhethertheyarestatisticallydifferent from zero or not. 23

ytisneD 5. 4. 3. 2. 1. 0 −10 −5 0 5 Net Income (a) Net Income ytisneD 6 4 2 0 −.4 −.2 0 .2 Net Income Percentile (b) Net Income Percentile ytisneD 51 01 5 0 −.2 −.1 0 .1 Return on Equity (c) ROE ytisneD 8 6 4 2 0 −.5 0 .5 Return on Equity Percentile (d) ROE Percentile ytisneD 051 001 05 0 −.02 −.01 0 .01 .02 .03 Return on Assets (e) ROA ytisneD 6 4 2 0 −.4 −.2 0 .2 .4 Return on Assets Percentile (f) ROA Percentile Figure 5: Histograms of Point Estimates. These histograms show the distribution of the 288 point estimates we obtain for the three outcome variables net income (row 1), return on equity (row 2) and return on assets (row 3). For the estimates on the right hand side these variables are transformed into percentiles for each quarter, which makes the estimates for net income, return on equity and return on assets more easily comparable. 24

Table 5: Distribution of Point Estimates Mean Min P1 P5 P25 Median P75 P95 P99 Max N NetIncome -0.837 -9.093 -8.144 -4.739 -1.422 -0.210 0.046 1.280 2.740 3.051 288 NetIncomePercentile -0.074 -0.465 -0.464 -0.394 -0.124 -0.033 0.011 0.148 0.237 0.272 288 ReturnonEquity -0.019 -0.217 -0.213 -0.173 -0.054 0.003 0.024 0.077 0.091 0.099 288 ReturnonEquityPercentile -0.012 -0.439 -0.436 -0.338 -0.071 -0.002 0.028 0.411 0.494 0.536 288 ReturnonAssets 0.000 -0.018 -0.018 -0.010 -0.002 0.001 0.002 0.013 0.025 0.028 288 ReturnonAssetsPercentile -0.016 -0.413 -0.406 -0.308 -0.058 -0.009 0.023 0.286 0.385 0.412 288 The distribution of point estimates is roughly centered around zero for all six outcome variables. We will focus in our discussion on the percentile transformations, because they are easier to interpret and comparable across different outcome variables. For the net income percentile our estimates range from -0.47 to +0.27, with a median estimate of -0.03. For the ROE percentile our estimates range from -0.44 to +0.49, with a median estimate of -0.002. Lastly, for ROA our estimates range from -0.41 to +0.41, with a median of -0.009. While most of the point estimates are small in magnitude the largest estimates are economically substantial. For example an estimate of +0.5 implies than an increase in Ownweight of 1 percentage point would lead to a shift in the distribution of the outcome variable by 0.5 percentage points. Figure 5 and Table 5 show all point estimates regardless of their precision. In Table 6 we only summarize estimates that are statistically significant at the one percent level. Depending on the outcome variable roughly one third to one half of the point estimates are statistically significant. The distributions are still roughly centered around zero for all outcome variables. Focusing on estimates that are statistically significant however shrinks the range of the effect sizes in some cases considerably. The range for the net income percentile is now -0.465 to 0.09 with a median of -0.09. The range for ROE is -0.44 to 0.08 with a median of -0.04. Lastly, the range for ROA is -0.41 to 0.15 with a median of -0.03. This shows that some of the large positive estimates in Table 5 are noisy. Table 6: Distribution of Statistically Significant Estimates (1 percent level) Mean Min P1 P5 P25 Median P75 P95 P99 Max N NetIncome -1.110 -9.093 -9.071 -3.233 -2.132 -0.939 -0.011 2.149 2.942 3.051 117 NetIncomePercentile -0.152 -0.465 -0.465 -0.436 -0.310 -0.085 -0.030 0.043 0.084 0.086 148 ReturnonEquity -0.040 -0.217 -0.217 -0.209 -0.136 0.010 0.028 0.030 0.065 0.065 92 ReturnonEquityPercentile -0.115 -0.439 -0.439 -0.413 -0.261 -0.041 0.023 0.037 0.084 0.084 91 ReturnonAssets -0.002 -0.018 -0.018 -0.018 -0.005 0.002 0.003 0.006 0.007 0.007 94 ReturnonAssetsPercentile -0.066 -0.413 -0.413 -0.401 -0.184 -0.026 0.030 0.127 0.150 0.152 112 25

So far we have only summarized the point estimates. In Table 7 we summarize the distribution of the upper bounds of the 99 percent confidence intervals around the point estimatesinTable6. Interestingly, theseupperboundsarestillroughlycenteredaround zero. For the net income percentile they range from -0.46 to +0.14, with a median of -0.045. For the ROE percentile they range from -0.25 to +0.11, with a median of -0.03. For the ROA percentile they range from -0.21 to +0.26, with a median of -0.006. Table 7: Distribution of Upper Bounds of 99 Percent CIs for Statistically Significant Estimates Mean Min P1 P5 P25 Median P75 P95 P99 Max N NetIncome -0.241 -5.207 -5.180 -2.578 -0.776 -0.162 -0.003 3.634 4.553 4.674 117 NetIncomePercentile -0.097 -0.460 -0.460 -0.418 -0.162 -0.045 -0.008 0.065 0.138 0.140 148 ReturnonEquity 0.007 -0.070 -0.070 -0.060 -0.037 0.019 0.045 0.052 0.093 0.093 92 ReturnonEquityPercentile -0.047 -0.250 -0.250 -0.225 -0.138 -0.029 0.044 0.071 0.110 0.110 91 ReturnonAssets 0.002 -0.006 -0.006 -0.005 -0.002 0.004 0.004 0.010 0.011 0.011 94 ReturnonAssetsPercentile 0.004 -0.208 -0.207 -0.198 -0.070 -0.006 0.050 0.232 0.258 0.262 112 Estimates by Subsample After discussing the distribution of estimates in general we now discuss how the distribution of estimates differs for different subsamples. Tables 8, 19 and 20 show the distributions of point estimates by subsample, for the net income, ROE and ROA percentiles. In all three cases, the estimates that are largest in magnitude are concentrated in subsamples 4 and subsamples 6-8 and especially subsamples 9 and 10. These are also the subsamples with the largest standard errors as shown in Tables 21, 22 and 23. In particular the standard errors for subsamples 9 and 10 are about one order of magnitude larger than for most other subsamples. Consquently, many of the point estimates for these subsamples are not statistically significant. Tables 24, 25 and 26 show only the statistically significant estimates (at the one percent level). Subsamples without any statistically significant estimates are not shown in these tables. The tables show that only few of the estimates for subsamples 4 and 6-10 are statistically significant, though the largest positive and statistically significant estimates can still be found in these subsamples. 26

Table 8: Distribution of Net Income Percentile Estimates by Subsample Mean Min P1 P5 P25 Median P75 P95 P99 Max N 1 -0.071 -0.340 -0.340 -0.339 -0.058 -0.036 0.017 0.023 0.024 0.024 24 2 -0.124 -0.317 -0.317 -0.316 -0.128 -0.097 -0.070 -0.033 -0.030 -0.030 24 3 -0.106 -0.398 -0.398 -0.397 -0.084 -0.061 -0.020 -0.018 -0.017 -0.017 24 4 -0.025 -0.129 -0.129 -0.129 -0.037 -0.005 0.011 0.014 0.016 0.016 24 5 -0.079 -0.377 -0.377 -0.376 -0.087 -0.022 0.006 0.028 0.029 0.029 24 6 -0.077 -0.415 -0.415 -0.415 -0.138 -0.034 0.004 0.159 0.160 0.160 24 7 -0.285 -0.385 -0.385 -0.383 -0.336 -0.303 -0.222 -0.165 -0.165 -0.165 24 8 -0.063 -0.465 -0.465 -0.465 -0.013 0.003 0.018 0.084 0.086 0.086 24 9 0.020 -0.237 -0.237 -0.237 -0.107 0.030 0.170 0.270 0.272 0.272 24 10 -0.027 -0.437 -0.437 -0.437 -0.078 -0.008 0.151 0.236 0.237 0.237 24 11 0.021 -0.027 -0.027 -0.027 0.009 0.029 0.040 0.046 0.046 0.046 24 12 -0.076 -0.206 -0.206 -0.205 -0.105 -0.064 -0.021 -0.000 0.003 0.003 24 Total -0.074 -0.465 -0.464 -0.394 -0.124 -0.033 0.011 0.148 0.237 0.272 288 Estimates by Weight Calculation Tables 9, 27 and 28 show the distribution of estimatesforthedifferentwaystocalculatetheprofitweightsshowninTable3. Overall, the distributions are very similar so the way the profit weights are calculated has only a minor influence on the estimates. The estimates in rows 1 and 4 are very similar and the estimates in rows 2 and 3 are very similar, though there is some gap between both of these pairs. Thus, the assumption about cross ownership appears to have a noticable yet small effect on the estimates whereas the assumption about the extra one percent undiversified shareholder has almost no impact on the estimates. Table 9: Distribution of Net Income Percentile Estimates by Profit Weight Calculation. The rows of this table correspond to the rows of Table 3. Mean Min P1 P5 P25 Median P75 P95 P99 Max N 1 -0.067 -0.465 -0.465 -0.398 -0.098 -0.028 0.011 0.163 0.270 0.270 72 2 -0.081 -0.464 -0.464 -0.393 -0.126 -0.038 0.012 0.139 0.202 0.202 72 3 -0.077 -0.464 -0.464 -0.397 -0.117 -0.035 0.015 0.140 0.200 0.200 72 4 -0.072 -0.465 -0.465 -0.394 -0.123 -0.029 0.009 0.163 0.272 0.272 72 Total -0.074 -0.465 -0.464 -0.394 -0.124 -0.033 0.011 0.148 0.237 0.272 288 Estimates by Specification Tables 10, 29 and 30 show the estimates for the six different specifications discussed above, again using the percentile transformations of the variables. 27

For net income in Table 10, most estimates with specification (1) are negative. As discussed above this reflects the fact that large banks with high net income are listed. There is no clear pattern among the other specifications that include bank fixed effects. The estimates for specifications (2)-(5) are roughly centered around zero. For ROE and ROA in Tables 29 and 30 the distributions for all specifications are centered around zero. However, in both cases the range of estimates for specification (1) is substantially smaller than for the other specifications. Table 10: Distribution of Net Income Percentile Estimates by Specification. The rows of this table correspond to the six colmuns of the regression specifications in Table 16. Mean Min P1 P5 P25 Median P75 P95 P99 Max N 1 -0.289 -0.465 -0.465 -0.464 -0.406 -0.338 -0.183 0.009 0.009 0.009 48 2 -0.058 -0.238 -0.238 -0.208 -0.087 -0.065 -0.027 0.202 0.272 0.272 48 3 -0.022 -0.184 -0.184 -0.165 -0.048 -0.035 0.003 0.148 0.193 0.193 48 4 -0.047 -0.345 -0.345 -0.310 -0.070 -0.013 0.013 0.037 0.039 0.039 48 5 0.007 -0.333 -0.333 -0.297 -0.023 0.025 0.078 0.160 0.163 0.163 48 6 -0.039 -0.340 -0.340 -0.298 -0.109 -0.018 0.017 0.192 0.237 0.237 48 Total -0.074 -0.465 -0.464 -0.394 -0.124 -0.033 0.011 0.148 0.237 0.272 288 Tables 11, 31 and 32 show the estimates that are statistically significant (at the one percent level) by specification. For net income, in Table 11, all statistically significant estimates for specifications (1)-(3) are negative, and more than 75 percent of the estimates for specification (4) are negative. The estimates for specifications (5) and (6) are roughly centered around zero. Hence, the estimates from specifications that control for bank size show somewhat more support for the hypothesis that higher “Ownweight” is associated with higher profits. For ROE in Table 31, specification (1) produces mostly negative estimates whereas the estimates for the other specifications are centered around zero. For ROA in Table 32, specification (2) produces mostly negative estimates whereas the estimates for the other specifications are centered around zero. 28

Table11: Distribution of Statistically Significant (1 percent level) Net Income Percentile Estimates by Specification. The rows of this table correspond to the six colmuns of the regression specifications in Table 16. Mean Min P1 P5 P25 Median P75 P95 P99 Max N 1 -0.316 -0.465 -0.465 -0.464 -0.414 -0.357 -0.237 -0.021 -0.021 -0.021 44 2 -0.097 -0.238 -0.238 -0.236 -0.103 -0.084 -0.058 -0.027 -0.027 -0.027 24 3 -0.078 -0.184 -0.184 -0.184 -0.083 -0.054 -0.046 -0.041 -0.041 -0.041 20 4 -0.098 -0.345 -0.345 -0.345 -0.135 -0.061 -0.030 0.039 0.039 0.039 20 5 -0.046 -0.333 -0.333 -0.332 -0.087 0.001 0.045 0.084 0.086 0.086 24 6 -0.108 -0.340 -0.340 -0.340 -0.222 -0.068 0.011 0.041 0.041 0.041 16 Total -0.152 -0.465 -0.465 -0.436 -0.310 -0.085 -0.030 0.043 0.084 0.086 148 6 Direct Shareholders and Active Investors In this section we estimate the effect of common ownership on bank profits if only common ownership through certain shareholders is taken into consideration. Specifically, we recalculate the profit weights under two alternative assumptions. First, if only common ownership by “Direct Shareholders” is taken into consideration, and second if only common ownership through “Active Investors” is taken into consideration. “Direct Shareholders” are the ultimate owners of the shares as opposed to asset managers that manage shares that are ultimately owned by their clients. The idea is that “Direct Shareholders” benefit more from increasing share prices (as a consequence of decreased competition) than asset managers. For example Berkshire Hathaway owns shares of several banks and is a “Direct Shareholder”. Vanguard, for example, is not a Direct Shareholder because they hold shares on behalf of clients and only gain a (small) percentage of assets under management through their fee ratio, p. If the shares of a bank held by Berkshire and Vanguard gain $100 in value, then Berkshire’s profits increase by $100 whereas Vanguard’s profit increase only by p×$100. As p is typically fairly small for many asset managers, direct shareholders may have a stronger incentive to prevent competition among their portfolio firms than asset managers. “Active Investors” are those that do not simply replicate an index. The idea is that index funds compete mostly on fees. It is unclear how strong the incentives of an index fund manager are to reduce competition among portfolio firms, given that improved performance of the index would also improve the performance of all all competing index fund managers, which replicate the same index. Active asset managers however, 29

who hold a unique portfolio which tries to pick winners, could outperform other active asset managers if their portfolio firms compete less and thereby attract new clients. When calculating profit weights with “Direct Shareholders” we only include ownership shares by Berkshire Hathaway and the Norwegian Sovereign Wealth fund. There are other direct shareholders that file the 13F besides these two. However among the largest 13F filers, that have the largest impact on the profit weights these are the only ones that can be viewed as “Direct Shareholders”. One could argue that the Norwegian Sovereign Wealth fund should be treated as an asset manager. By treating it as a “Direct Shareholder” we implicitly assume that its incentives are aligned with the incentives of Norwegians. When calculating the profit weights with “Active Investors” we include the ownership shares of the active investors among the largest 10 institutional investors in the banking sector.16Many asset managers have some funds that are actively managed and others that are passively managed. Therefore such a binary classification involves some judgment. Moreover, there are many smaller “Active Investors” that we do not take into account. However, the largest ones we do take into account have the largest impact on the profit weights. Table 12 shows the distribution of point estimates if only ownership by “Direct Shareholders” is taken into account.The estimates are still roughly centered around zero and the distributions of estimates appears to be broadly similar to the distributions of estimates if all ownership shares are taken into account. Table 13 shows the distribution of point estimates if only ownership by “Active Investors” is taken into account. Again, the distribution of point estimates is centered around zero, but the range of estimates appears to be somewhat smaller than if all ownership shares are taken into account. Tables 33 and 34 show the distributions of statistically significant estimates for “Direct Shareholders” and “Active Investors”. The distributions are either centered around zero or have most of their mass on negative estimates. The largest positive estimates with “Direct Shareholders” for the Net Income Percentile and the ROE Percentile are however larger than if all ownership shares are taken into account. 16Among the largest 10 institutional investors, we classified three as passive (Vanguard, Blackrock, andStateStreet)andtheremainingsevenasactive(Fidelity,Berkshire,TRowePrice,JPMC,Northern Trust, Dodge & Cox, and Bank of New York Mellon). 30

Table 12: Direct Shareholders: Distribution of Point Estimates Mean Min P1 P5 P25 Median P75 P95 P99 Max N NetIncome -0.654 -9.257 -9.257 -7.424 -1.313 -0.004 0.976 2.169 2.364 2.364 72 NetIncomePercentile -0.056 -0.645 -0.645 -0.495 -0.085 -0.006 0.038 0.100 0.112 0.112 72 ReturnonEquity -0.014 -0.088 -0.088 -0.066 -0.039 -0.016 0.014 0.043 0.047 0.047 72 ReturnonEquityPercentile -0.012 -0.226 -0.226 -0.128 -0.065 -0.010 0.030 0.124 0.135 0.135 72 ReturnonAssets -0.002 -0.008 -0.008 -0.006 -0.004 -0.002 0.001 0.003 0.004 0.004 72 ReturnonAssetsPercentile -0.005 -0.153 -0.153 -0.136 -0.048 -0.000 0.041 0.100 0.125 0.125 72 Table 13: Active Investors: Distribution of Point Estimates Mean Min P1 P5 P25 Median P75 P95 P99 Max N NetIncome -0.459 -3.895 -3.895 -2.161 -0.526 -0.208 -0.054 0.014 0.120 0.120 72 NetIncomePercentile -0.045 -0.476 -0.476 -0.432 -0.018 -0.008 0.020 0.035 0.058 0.058 72 ReturnonEquity -0.003 -0.053 -0.053 -0.042 -0.012 -0.002 0.006 0.019 0.054 0.054 72 ReturnonEquityPercentile -0.022 -0.170 -0.170 -0.113 -0.036 -0.013 0.004 0.014 0.061 0.061 72 ReturnonAssets 0.001 -0.004 -0.004 -0.002 -0.001 0.000 0.001 0.004 0.006 0.006 72 ReturnonAssetsPercentile -0.016 -0.155 -0.155 -0.075 -0.036 -0.014 0.009 0.028 0.081 0.081 72 7 Conclusion Theory predicts that common ownership can be anticompetitive, because it reduces the weight firms place in their objective function on their own profits and instead shifts weight to rival firms that are held by a common shareholder. We estimate the effect of the predicted profit weight shifts due to common ownership on accounting measures of profitability in the banking industry. We present a large range of estimates that are centered around zero and argue that economically most estimates are fairly small. Our interpretation of these findings is that there is little evidence for economically large effects of common ownership on profits in the banking industry. 31

References Azar, J. (2011): “A new look at oligopoly: Implicit collusion through portfolio diversification,” . Azar, J., S. Raina, and M. C. Schmalz (2016): “Ultimate Ownership and Bank Competition,” Available at SSRN 2710252. Azar, J., M. C. Schmalz, and I. Tecu (2016): “Anti-competitive effects of common ownership,” . (2017): “The Competitive Effects of Common Ownership: Economic Foundations and Empirical Evidence: Reply,” . Dennis, P., K. Gerardi, and C. Schenone (2017): “Common Ownership Does Not Have Anti-Competitive Effects in the Airline Industry,” . Elhauge, E. (2016): “Horizontal Shareholding,” Harvard Law Review, Available at SSRN: https://ssrn.com/abstract=2632024. Gramlich, J., and S. Grundl (2017): “Estimating the Competitive Effects of Common Ownership,” . Kennedy, P., D. P. O’Brien, M. Song, and K. Waehrer (2017): “The CompetitiveEffects ofCommon Ownership: Economic Foundations andEmpirical Evidence,” . O’Brien, D. P., and S. C. Salop (2000): “Competitive effects of partial ownership: Financial interest and corporate control,” Antitrust Law Journal, 67(3), 559–614. Panayides, M. A., and S. Thomas (2017): “Commonality in institutional ownership and competition in product markets,” . Posner, E. A., F. M. Scott Morton, and E. G. Weyl (2016): “A Proposal to Limit the Anti-Competitive Power of Institutional Investors,” . Rock, E. B., and D. L. Rubinfeld (2017): “Defusing the Antitrust Threat to Institutional Investor Involvement in Corporate Governance,” . Scott Morton, F. M., and H. J. Hovenkamp (2017): “Horizontal Shareholding and Antitrust Policy,” . 32

A Tables Table 14: ROE (1) (2) (3) (4) (5) (6) WeightonOwnProfits 0.00119 0.0157∗∗ 0.0192∗∗ 0.0175∗ 0.0316∗∗∗ 0.0287∗∗∗ (0.00514) (0.00518) (0.00649) (0.00760) (0.00703) (0.00727) TotalWeightReceivedfromRivals 0.00464 0.00908 0.00919 0.00370 (0.00460) (0.00620) (0.00624) (0.00474) 13FOwnershipShare -1.990 -5.253∗ 5.117∗ (2.297) (2.568) (2.142) log(TotalAssets) 5.011∗∗∗ (0.543) QuarterFixedEffects Yes Yes Yes Yes Yes No BankFixedEffects No Yes Yes Yes Yes Yes AssetDecilexQuarterFixedEffects No No No No No Yes N 401341 401229 401229 401229 401229 401229 Standarderrorsinparentheses ∗p<0.05,∗∗p<0.01,∗∗∗p<0.001 Table 15: ROA (1) (2) (3) (4) (5) (6) WeightonOwnProfits 0.00118∗ -0.000113 0.00108 0.00141∗ 0.00274∗∗∗ 0.00225∗∗ (0.000460) (0.000456) (0.000601) (0.000706) (0.000661) (0.000685) TotalWeightReceivedfromRivals 0.00160∗∗ 0.000671 0.000770 0.000467 (0.000558) (0.000712) (0.000721) (0.000574) 13FOwnershipShare 0.399 0.0858 0.857∗∗ (0.230) (0.255) (0.251) log(TotalAssets) 0.473∗∗∗ (0.0487) QuarterFixedEffects Yes Yes Yes Yes Yes No BankFixedEffects No Yes Yes Yes Yes Yes AssetDecilexQuarterFixedEffects No No No No No Yes N 401341 401229 401229 401229 401229 401229 Standarderrorsinparentheses ∗p<0.05,∗∗p<0.01,∗∗∗p<0.001 33

Table 16: Net Income Percentile (1) (2) (3) (4) (5) (6) WeightonOwnProfits -0.340∗∗∗ -0.0584∗∗∗ -0.0414∗∗∗ -0.0295∗∗ 0.0237∗∗ 0.0177∗ (0.0145) (0.0103) (0.00856) (0.00924) (0.00773) (0.00718) TotalWeightReceivedfromRivals 0.0228∗∗∗ -0.0102 -0.00620 0.00289 (0.00644) (0.0169) (0.0170) (0.00932) 13FOwnershipShare 14.18∗ 1.559 19.60∗∗∗ (5.787) (6.416) (3.815) log(TotalAssets) 19.05∗∗∗ (0.897) QuarterFixedEffects Yes Yes Yes Yes Yes No BankFixedEffects No Yes Yes Yes Yes Yes AssetDecilexQuarterFixedEffects No No No No No Yes N 401341 401229 401229 401229 401229 401229 Standarderrorsinparentheses ∗p<0.05,∗∗p<0.01,∗∗∗p<0.001 Table 17: ROE Percentile (1) (2) (3) (4) (5) (6) WeightonOwnProfits -0.0349∗∗∗ 0.0213∗∗ 0.00469 -0.00861 0.0281∗∗∗ 0.0202∗∗ (0.00992) (0.00719) (0.00714) (0.00771) (0.00705) (0.00633) TotalWeightReceivedfromRivals -0.0222∗∗∗ 0.0147 0.0175 0.00283 (0.00507) (0.0112) (0.0114) (0.00758) 13FOwnershipShare -15.91∗∗∗ -24.62∗∗∗ -1.669 (4.114) (4.512) (2.601) log(TotalAssets) 13.14∗∗∗ (0.789) QuarterFixedEffects Yes Yes Yes Yes Yes No BankFixedEffects No Yes Yes Yes Yes Yes AssetDecilexQuarterFixedEffects No No No No No Yes N 401341 401229 401229 401229 401229 401229 Standarderrorsinparentheses ∗p<0.05,∗∗p<0.01,∗∗∗p<0.001 34

Table 18: ROA Percentile (1) (2) (3) (4) (5) (6) WeightonOwnProfits 0.00810 -0.0189∗∗ -0.0109 -0.00845 0.0204∗∗∗ 0.0121∗ (0.00730) (0.00634) (0.00575) (0.00601) (0.00587) (0.00549) TotalWeightReceivedfromRivals 0.0107∗ 0.00394 0.00609 0.00307 (0.00477) (0.0102) (0.0104) (0.00715) 13FOwnershipShare 2.904 -3.931 9.597∗∗∗ (3.360) (3.718) (2.291) log(TotalAssets) 10.31∗∗∗ (0.605) QuarterFixedEffects Yes Yes Yes Yes Yes No BankFixedEffects No Yes Yes Yes Yes Yes AssetDecilexQuarterFixedEffects No No No No No Yes N 401341 401229 401229 401229 401229 401229 Standarderrorsinparentheses ∗p<0.05,∗∗p<0.01,∗∗∗p<0.001 Table 19: Distribution of ROE Percentile Estimates by Subsample Mean Min P1 P5 P25 Median P75 P95 P99 Max N 1 0.005 -0.035 -0.035 -0.035 -0.008 0.014 0.021 0.028 0.029 0.029 24 2 -0.037 -0.168 -0.168 -0.151 -0.041 -0.020 -0.008 0.042 0.046 0.046 24 3 -0.020 -0.098 -0.098 -0.098 -0.018 -0.009 0.006 0.009 0.009 0.009 24 4 0.048 0.027 0.027 0.028 0.032 0.036 0.071 0.083 0.084 0.084 24 5 0.012 -0.011 -0.011 -0.011 -0.009 0.014 0.026 0.037 0.038 0.038 24 6 -0.046 -0.235 -0.235 -0.234 -0.098 -0.052 0.023 0.097 0.100 0.100 24 7 -0.358 -0.439 -0.439 -0.438 -0.407 -0.349 -0.311 -0.261 -0.260 -0.260 24 8 -0.009 -0.155 -0.155 -0.155 -0.055 0.022 0.040 0.081 0.083 0.083 24 9 -0.065 -0.155 -0.155 -0.152 -0.135 -0.102 0.017 0.079 0.079 0.079 24 10 0.368 -0.041 -0.041 -0.041 0.400 0.436 0.469 0.534 0.536 0.536 24 11 0.024 0.018 0.018 0.018 0.021 0.024 0.025 0.035 0.035 0.035 24 12 -0.069 -0.186 -0.186 -0.186 -0.106 -0.051 -0.018 0.002 0.002 0.002 24 Total -0.012 -0.439 -0.436 -0.338 -0.071 -0.002 0.028 0.411 0.494 0.536 288 35

Table 20: Distribution of ROA Percentile Estimates by Subsample Mean Min P1 P5 P25 Median P75 P95 P99 Max N 1 0.000 -0.019 -0.019 -0.019 -0.010 0.000 0.012 0.020 0.021 0.021 24 2 -0.058 -0.208 -0.208 -0.187 -0.066 -0.041 -0.019 0.004 0.012 0.012 24 3 -0.024 -0.047 -0.047 -0.047 -0.027 -0.024 -0.013 -0.009 -0.009 -0.009 24 4 0.022 -0.004 -0.004 -0.004 0.004 0.006 0.012 0.106 0.106 0.106 24 5 0.002 -0.032 -0.032 -0.031 -0.006 0.006 0.017 0.022 0.023 0.023 24 6 -0.071 -0.200 -0.200 -0.200 -0.121 -0.051 -0.033 0.043 0.043 0.043 24 7 -0.327 -0.413 -0.413 -0.413 -0.397 -0.315 -0.299 -0.222 -0.222 -0.222 24 8 0.083 -0.080 -0.080 -0.080 0.066 0.119 0.126 0.150 0.152 0.152 24 9 -0.025 -0.109 -0.109 -0.108 -0.103 -0.038 0.035 0.107 0.107 0.107 24 10 0.262 -0.056 -0.056 -0.056 0.259 0.305 0.361 0.410 0.412 0.412 24 11 0.025 -0.004 -0.004 -0.004 0.023 0.029 0.030 0.044 0.044 0.044 24 12 -0.078 -0.174 -0.174 -0.173 -0.087 -0.074 -0.056 -0.001 -0.001 -0.001 24 Total -0.016 -0.413 -0.406 -0.308 -0.058 -0.009 0.023 0.286 0.385 0.412 288 Table 21: Distribution of Net Income Percentile Standard Errors by Subsample Mean Min P1 P5 P25 Median P75 P95 P99 Max N 1 0.010 0.007 0.007 0.007 0.008 0.009 0.010 0.014 0.014 0.014 24 2 0.023 0.016 0.016 0.016 0.018 0.023 0.028 0.030 0.034 0.034 24 3 0.006 0.003 0.003 0.003 0.005 0.006 0.007 0.009 0.009 0.009 24 4 0.027 0.024 0.024 0.024 0.025 0.026 0.027 0.031 0.031 0.031 24 5 0.014 0.010 0.010 0.010 0.013 0.014 0.015 0.015 0.015 0.015 24 6 0.061 0.011 0.011 0.011 0.053 0.071 0.077 0.084 0.084 0.084 24 7 0.063 0.054 0.054 0.054 0.055 0.063 0.071 0.078 0.078 0.078 24 8 0.014 0.002 0.002 0.002 0.013 0.015 0.017 0.021 0.021 0.021 24 9 0.303 0.024 0.024 0.024 0.333 0.354 0.370 0.385 0.389 0.389 24 10 0.234 0.007 0.007 0.007 0.255 0.276 0.286 0.315 0.315 0.315 24 11 0.008 0.007 0.007 0.007 0.007 0.008 0.009 0.009 0.009 0.009 24 12 0.081 0.003 0.003 0.003 0.088 0.096 0.100 0.105 0.105 0.105 24 Total 0.070 0.002 0.002 0.005 0.009 0.023 0.074 0.348 0.381 0.389 288 36

Table 22: Distribution of ROE Percentile Standard Errors by Subsample Mean Min P1 P5 P25 Median P75 P95 P99 Max N 1 0.006 0.005 0.005 0.005 0.005 0.007 0.007 0.008 0.008 0.008 24 2 0.022 0.015 0.015 0.016 0.020 0.021 0.025 0.027 0.028 0.028 24 3 0.005 0.004 0.004 0.004 0.005 0.005 0.005 0.005 0.005 0.005 24 4 0.027 0.011 0.011 0.011 0.028 0.029 0.031 0.035 0.035 0.035 24 5 0.006 0.001 0.001 0.001 0.006 0.007 0.008 0.008 0.008 0.008 24 6 0.039 0.004 0.004 0.004 0.044 0.045 0.048 0.049 0.049 0.049 24 7 0.050 0.033 0.033 0.033 0.046 0.051 0.055 0.060 0.060 0.060 24 8 0.018 0.004 0.004 0.004 0.014 0.020 0.023 0.024 0.024 0.024 24 9 0.231 0.008 0.008 0.008 0.251 0.265 0.290 0.304 0.304 0.304 24 10 0.129 0.003 0.003 0.003 0.144 0.152 0.158 0.172 0.172 0.172 24 11 0.006 0.004 0.004 0.004 0.004 0.008 0.008 0.009 0.009 0.009 24 12 0.069 0.003 0.003 0.003 0.081 0.082 0.084 0.085 0.086 0.086 24 Total 0.051 0.001 0.001 0.004 0.007 0.021 0.051 0.254 0.298 0.304 288 Table 23: Distribution of ROA Percentile Standard Errors by Subsample Mean Min P1 P5 P25 Median P75 P95 P99 Max N 1 0.006 0.005 0.005 0.005 0.006 0.006 0.006 0.007 0.007 0.007 24 2 0.021 0.018 0.018 0.018 0.019 0.021 0.023 0.026 0.030 0.030 24 3 0.007 0.006 0.006 0.006 0.006 0.007 0.008 0.009 0.009 0.009 24 4 0.026 0.010 0.010 0.010 0.029 0.029 0.030 0.030 0.030 0.030 24 5 0.011 0.005 0.005 0.005 0.011 0.013 0.013 0.014 0.014 0.014 24 6 0.053 0.006 0.006 0.006 0.058 0.060 0.066 0.071 0.071 0.071 24 7 0.068 0.047 0.047 0.047 0.061 0.068 0.077 0.083 0.083 0.083 24 8 0.037 0.006 0.006 0.006 0.037 0.041 0.042 0.057 0.057 0.057 24 9 0.102 0.012 0.012 0.012 0.112 0.117 0.124 0.132 0.132 0.132 24 10 0.180 0.006 0.006 0.006 0.208 0.212 0.217 0.224 0.225 0.225 24 11 0.007 0.005 0.005 0.005 0.006 0.008 0.008 0.008 0.008 0.008 24 12 0.072 0.004 0.004 0.004 0.084 0.085 0.086 0.088 0.089 0.089 24 Total 0.049 0.004 0.004 0.006 0.008 0.028 0.071 0.211 0.220 0.225 288 37

Table24: Distribution of Statistically Significant (1 percent level) Net Income Percentile Estimates by Subsample. Missing subsamples have no statistically significant estimates. Mean Min P1 P5 P25 Median P75 P95 P99 Max N 1 -0.089 -0.340 -0.340 -0.339 -0.059 -0.042 -0.030 0.024 0.024 0.024 20 2 -0.132 -0.317 -0.317 -0.316 -0.132 -0.113 -0.079 -0.049 -0.045 -0.045 22 3 -0.106 -0.398 -0.398 -0.397 -0.084 -0.061 -0.020 -0.018 -0.017 -0.017 24 4 -0.129 -0.129 -0.129 -0.129 -0.129 -0.129 -0.128 -0.128 -0.128 -0.128 4 5 -0.170 -0.377 -0.377 -0.377 -0.375 -0.087 -0.048 -0.047 -0.047 -0.047 12 6 -0.326 -0.415 -0.415 -0.415 -0.415 -0.414 -0.149 -0.148 -0.148 -0.148 6 7 -0.285 -0.385 -0.385 -0.383 -0.336 -0.303 -0.222 -0.165 -0.165 -0.165 24 8 -0.193 -0.465 -0.465 -0.465 -0.464 -0.196 0.078 0.086 0.086 0.086 8 9 -0.237 -0.237 -0.237 -0.237 -0.237 -0.237 -0.237 -0.237 -0.237 -0.237 4 10 -0.437 -0.437 -0.437 -0.437 -0.437 -0.437 -0.437 -0.436 -0.436 -0.436 4 11 0.024 -0.027 -0.027 -0.027 0.005 0.039 0.042 0.046 0.046 0.046 16 12 -0.021 -0.021 -0.021 -0.021 -0.021 -0.021 -0.021 -0.021 -0.021 -0.021 4 Total -0.152 -0.465 -0.465 -0.436 -0.310 -0.085 -0.030 0.043 0.084 0.086 148 Table 25: Distribution of Statistically Significant (1 percent level) ROE Percentile Estimates by Subsample. Missing subsamples have no statistically significant estimates. Mean Min P1 P5 P25 Median P75 P95 P99 Max N 1 0.009 -0.035 -0.035 -0.035 -0.007 0.021 0.024 0.029 0.029 0.029 16 2 -0.151 -0.168 -0.168 -0.168 -0.159 -0.149 -0.142 -0.137 -0.137 -0.137 4 3 -0.097 -0.098 -0.098 -0.098 -0.098 -0.097 -0.097 -0.097 -0.097 -0.097 4 4 0.083 0.083 0.083 0.083 0.083 0.083 0.083 0.084 0.084 0.084 4 5 0.037 0.037 0.037 0.037 0.037 0.037 0.037 0.037 0.037 0.037 1 6 -0.139 -0.235 -0.235 -0.235 -0.193 -0.118 -0.085 -0.085 -0.085 -0.085 8 7 -0.358 -0.439 -0.439 -0.438 -0.407 -0.349 -0.311 -0.261 -0.260 -0.260 24 8 -0.155 -0.155 -0.155 -0.155 -0.155 -0.155 -0.155 -0.155 -0.155 -0.155 4 10 -0.041 -0.041 -0.041 -0.041 -0.041 -0.041 -0.041 -0.041 -0.041 -0.041 4 11 0.025 0.018 0.018 0.018 0.021 0.024 0.026 0.035 0.035 0.035 22 Total -0.115 -0.439 -0.439 -0.413 -0.261 -0.041 0.023 0.037 0.084 0.084 91 38

Table 26: Distribution of Statistically Significant (1 percent level) ROA Percentile Estimates by Subsample. Missing subsamples have no statistically significant estimates. Mean Min P1 P5 P25 Median P75 P95 P99 Max N 1 0.000 -0.019 -0.019 -0.019 -0.019 0.000 0.020 0.021 0.021 0.021 8 2 -0.126 -0.208 -0.208 -0.208 -0.184 -0.122 -0.066 -0.061 -0.061 -0.061 8 3 -0.030 -0.047 -0.047 -0.047 -0.037 -0.026 -0.024 -0.023 -0.023 -0.023 16 4 0.106 0.106 0.106 0.106 0.106 0.106 0.106 0.106 0.106 0.106 4 5 -0.032 -0.032 -0.032 -0.032 -0.032 -0.032 -0.031 -0.031 -0.031 -0.031 2 6 -0.101 -0.200 -0.200 -0.200 -0.200 -0.051 -0.051 -0.051 -0.051 -0.051 6 7 -0.327 -0.413 -0.413 -0.413 -0.397 -0.315 -0.299 -0.222 -0.222 -0.222 24 8 0.087 -0.080 -0.080 -0.080 0.113 0.122 0.128 0.151 0.152 0.152 20 10 -0.056 -0.056 -0.056 -0.056 -0.056 -0.056 -0.056 -0.056 -0.056 -0.056 4 11 0.031 0.022 0.022 0.022 0.028 0.030 0.031 0.044 0.044 0.044 20 Total -0.066 -0.413 -0.413 -0.401 -0.184 -0.026 0.030 0.127 0.150 0.152 112 Table 27: Distribution of ROE Percentile Estimates by Profit Weight Calculation. The rows of this table correspond to the rows of Table 3. Mean Min P1 P5 P25 Median P75 P95 P99 Max N 1 -0.002 -0.344 -0.344 -0.309 -0.065 0.002 0.034 0.446 0.534 0.534 72 2 -0.022 -0.438 -0.438 -0.399 -0.079 -0.007 0.027 0.408 0.482 0.482 72 3 -0.020 -0.439 -0.439 -0.402 -0.082 -0.004 0.030 0.406 0.481 0.481 72 4 -0.004 -0.344 -0.344 -0.307 -0.066 -0.000 0.028 0.448 0.536 0.536 72 Total -0.012 -0.439 -0.436 -0.338 -0.071 -0.002 0.028 0.411 0.494 0.536 288 Table 28: Distribution of ROA Percentile Estimates by Profit Weight Calculation. The rows of this table correspond to the rows of Table 3. Mean Min P1 P5 P25 Median P75 P95 P99 Max N 1 -0.004 -0.323 -0.323 -0.298 -0.053 -0.007 0.025 0.351 0.410 0.410 72 2 -0.027 -0.413 -0.413 -0.394 -0.070 -0.012 0.023 0.269 0.313 0.313 72 3 -0.024 -0.413 -0.413 -0.394 -0.060 -0.008 0.022 0.270 0.311 0.311 72 4 -0.006 -0.322 -0.322 -0.298 -0.056 -0.010 0.026 0.350 0.412 0.412 72 Total -0.016 -0.413 -0.406 -0.308 -0.058 -0.009 0.023 0.286 0.385 0.412 288 39

Table29: Distribution of ROE Percentile Estimates by Specification. Therows of this table correspond to the six colmuns of the regression specifications in Table 17. Mean Min P1 P5 P25 Median P75 P95 P99 Max N 1 -0.071 -0.436 -0.436 -0.344 -0.118 -0.038 0.003 0.083 0.084 0.084 48 2 0.008 -0.413 -0.413 -0.313 -0.020 0.018 0.071 0.408 0.448 0.448 48 3 -0.014 -0.439 -0.439 -0.338 -0.089 0.002 0.022 0.393 0.435 0.435 48 4 -0.009 -0.392 -0.392 -0.300 -0.060 -0.008 0.026 0.411 0.457 0.457 48 5 0.025 -0.402 -0.402 -0.309 -0.007 0.025 0.040 0.482 0.536 0.536 48 6 -0.013 -0.356 -0.356 -0.261 -0.105 0.008 0.026 0.438 0.494 0.494 48 Total -0.012 -0.439 -0.436 -0.338 -0.071 -0.002 0.028 0.411 0.494 0.536 288 Table 30: Distribution of ROA Percentile Estimates by Specification. The rows of this table correspond to the six colmuns of the regression specifications in Table 18. Mean Min P1 P5 P25 Median P75 P95 P99 Max N 1 -0.046 -0.394 -0.394 -0.298 -0.068 -0.012 0.022 0.106 0.106 0.106 48 2 -0.010 -0.315 -0.315 -0.223 -0.047 -0.019 0.050 0.248 0.322 0.322 48 3 -0.003 -0.308 -0.308 -0.222 -0.027 -0.010 0.011 0.270 0.351 0.351 48 4 -0.016 -0.406 -0.406 -0.316 -0.087 -0.014 0.025 0.298 0.385 0.385 48 5 0.002 -0.413 -0.413 -0.323 -0.054 0.012 0.030 0.286 0.371 0.371 48 6 -0.020 -0.401 -0.401 -0.301 -0.091 0.006 0.023 0.313 0.412 0.412 48 Total -0.016 -0.413 -0.406 -0.308 -0.058 -0.009 0.023 0.286 0.385 0.412 288 Table 31: Distribution of Statistically Significant (1 percent level) ROE Percentile Estimates by Specification. The rows of this table correspond to the six colmuns of the regression specifications in Table 17. Mean Min P1 P5 P25 Median P75 P95 P99 Max N 1 -0.093 -0.436 -0.436 -0.435 -0.153 -0.085 -0.034 0.083 0.084 0.084 36 2 -0.108 -0.413 -0.413 -0.413 -0.313 0.018 0.020 0.021 0.021 0.021 12 3 -0.183 -0.439 -0.439 -0.439 -0.388 -0.158 0.022 0.024 0.024 0.024 8 4 -0.223 -0.392 -0.392 -0.392 -0.390 -0.299 0.021 0.023 0.023 0.023 6 5 -0.090 -0.402 -0.402 -0.402 -0.307 0.025 0.028 0.037 0.037 0.037 13 6 -0.114 -0.356 -0.356 -0.356 -0.247 -0.065 0.022 0.026 0.026 0.026 16 Total -0.115 -0.439 -0.439 -0.413 -0.261 -0.041 0.023 0.037 0.084 0.084 91 40

Table 32: Distribution of Statistically Significant (1 percent level) ROA Percentile Estimates by Specification. The rows of this table correspond to the six colmuns of the regression specifications in Table 18. Mean Min P1 P5 P25 Median P75 P95 P99 Max N 1 -0.074 -0.394 -0.394 -0.394 -0.126 -0.053 0.010 0.106 0.106 0.106 32 2 -0.052 -0.315 -0.315 -0.315 -0.061 -0.032 -0.019 0.123 0.123 0.123 19 3 -0.037 -0.308 -0.308 -0.308 -0.124 -0.000 0.070 0.122 0.122 0.122 16 4 -0.059 -0.406 -0.406 -0.406 -0.072 -0.025 0.030 0.130 0.130 0.130 17 5 -0.043 -0.413 -0.413 -0.413 -0.068 0.021 0.031 0.152 0.152 0.152 17 6 -0.159 -0.401 -0.401 -0.401 -0.301 -0.200 0.029 0.030 0.030 0.030 11 Total -0.066 -0.413 -0.413 -0.401 -0.184 -0.026 0.030 0.127 0.150 0.152 112 Table 33: Direct Shareholders: Distribution of Statistically Significant (1 percent level) Point Estimates. Mean Min P1 P5 P25 Median P75 P95 P99 Max N NetIncome -2.596 -9.257 -9.257 -9.257 -7.424 -3.847 2.169 2.364 2.364 2.364 15 NetIncomePercentile -0.100 -0.645 -0.645 -0.614 -0.211 0.033 0.081 0.110 0.112 0.112 34 ReturnonEquity -0.033 -0.088 -0.088 -0.088 -0.065 -0.044 -0.036 0.047 0.047 0.047 18 ReturnonEquityPercentile -0.015 -0.226 -0.226 -0.191 -0.092 -0.036 0.080 0.134 0.135 0.135 35 ReturnonAssets -0.004 -0.008 -0.008 -0.008 -0.006 -0.004 -0.003 0.004 0.004 0.004 19 ReturnonAssetsPercentile -0.000 -0.153 -0.153 -0.151 -0.071 0.056 0.078 0.124 0.125 0.125 29 Table 34: Active Investors: Distribution of Statistically Significant (1 percent level) Point Estimates. Mean Min P1 P5 P25 Median P75 P95 P99 Max N NetIncome -0.862 -3.895 -3.895 -2.946 -1.396 -0.396 -0.061 0.015 0.017 0.017 24 NetIncomePercentile -0.139 -0.476 -0.476 -0.468 -0.317 -0.038 0.027 0.043 0.058 0.058 24 ReturnonEquity -0.015 -0.053 -0.053 -0.053 -0.028 -0.015 -0.010 0.054 0.054 0.054 19 ReturnonEquityPercentile -0.053 -0.170 -0.170 -0.142 -0.056 -0.038 -0.029 -0.020 0.061 0.061 25 ReturnonAssets -0.000 -0.004 -0.004 -0.004 -0.002 -0.001 0.002 0.004 0.006 0.006 20 ReturnonAssetsPercentile -0.042 -0.155 -0.155 -0.130 -0.048 -0.036 -0.024 0.019 0.081 0.081 28 41