Who Is Afraid of BlackRock?

Abstract

We exploit the merger between BlackRock and Barclays Global Investors to study how changes in expected ownership concentration affect the investment behavior of funds and the cross-section of stocks worldwide. We find that funds with open-end structures and large exposure to commonly held stocks begin avoiding these stocks following the merger announcement. This leads to a permanent change in the composition of institutional ownership and a negative price and liquidity impact. We confirm these results in a large sample of global asset management mergers. Our findings suggest that market participants behave strategically in response to changes in expected financial fragility.