Varun Sharma, PhD candidate, London Business School
This paper investigates whether and how investor composition affects firms’ product prices, customer composition, and market share. I compile a micro-level dataset that links firms’ investors with the products firms sell and the underlying household customers of these products. Exploiting quasi-experimental variation, I show that after experiencing an increase in benchmark-constrained investors, firms (i) set lower product prices, especially for products with lower market share, (ii) expand their customer base towards lower-income households, and (iii) introduce new products and diversify. I provide evidence that benchmark constrained investors influence product markets by reducing firms’ cost of equity. Using a model with product-level habits, I show that in response to the reduction in equity issuance cost due to an increase in demand for firms’ equity, firms lower their product prices and forgo current profits in favor of higher market share. Overall, these results suggest that trends such as the growth of ETFs can expand affordable product choices for low-income households, but potentially at the cost of lower market competition.
Speaker bio
Varun is a 5th year finance PhD candidate at London Business School. His research interests relate to intermediation, climate finance, and empirical asset pricing. Varun’s research has received various prestigious awards and external grants. These include the Best Paper at the European Investment Forum (Cambridge Judge Business School), Moskowitz Prize by Kellogg School of Management, Best Paper at the FMA, and the competitive external research grants from UCSD and Inquire Europe. In addition, his papers have been selected at prestigious conferences such as the AFA, NBER, WFA, EFA, SFS Cavalcade, FIRS, and NFA. In addition, various media outlets have covered his research. Before joining PhD, Varun worked as an Associate Director with PwC risk advisory practice in London. He has over 12 years of management consulting experience, focusing on risk management models and methods of Fortune 500 banks and investment management firms. Varun holds a Master in Finance degree from London Business School. He is also a CFA and FRM charter holder.
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Event timings
Date:
5 October 2021
Start Time:
13:00
End Time:
14:15