Institutional Investors and Corporate Governance
Implications of Increased Institutional Ownership of Common Stock
Common stock ownership in the United States has increasingly passed into the hands of financial institutions. It is estimated that institutional ownership of public corporations' common stock grew from 6 percent of the total in 1950 to 47 percent by the end of 1996. Institutions now hold nearly 60 percent of the stock of the 1,000 largest U.S. corporations, and they collectively hold more than 50 percent of the stock in two-thirds of these corporations. In only 12.5 percent of these same corporations do institutional holdings account for less than 30 percent.
The increase in institutional holdings clearly creates the potential for financial institutions to play a greater role in corporate governance. Some, arguing from the American populist political tradition, see this as a potentially dangerous aggregation of power in the hands of concentrated financial interests, The Financial Economists Roundtable views increased institutional ownership of common stock as…
