How common owners contain the costs of media disapproval in controversial industries?

Various hidden forces shape the competitive landscapes we know. Situating our study in the context of within-industry common ownership and the media, we investigate the role that common owners play in thwarting media disapproval—where firms are disapproved in the media for contested business practices they share with their broader industry. When a firm in a controversial industry acquiesces to media disapproval, it implicitly acknowledges the “dirtiness” of the practice which can elevate costs and pressures on other firms to do the same. Because common owners hold shares in multiple peers in a single industry, we argue they will invest in firms that experience disapproval in an effort to prevent these firms from acquiescing to media disapproval. We posit this relationship is stronger when it is more difficult for common owners to divest from the controversial industry and when the source of disapproval is more credible. Bringing our theory full circle, we hypothesize that an influx of common owners into a target firm reduces the extent to which it will acquiesce to media disapproval. Using data on common owners of arms manufacturers, we find support for our theory. This study reveals new hidden forces that underlie organizational resistance to media disapproval.