DP11471 Who is afraid of BlackRock?

Author(s): Massimo Massa, David Schumacher, Yan Wang
Publication Date: August 2016
Keyword(s): Asset Management Merger, Limits to Arbitrage, liquidity, Strategic Interactions
JEL(s): G11, G12, G14, G15, G23
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11471

We use the merger of BlackRock with Barclays Global Investors 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 institutions begin avoiding stocks that experience a merger-related increase in ownership concentration. As a result, affected stocks experience a permanent and negative price, liquidity and volatility impact. We confirm these effects in a large sample of asset management mergers over a ten year period. The interpretation that institutions strategically avoid stocks with an elevated risk of future fragility enjoys the strongest support in the data.