Economic Implications of Changing Share Ownership

30 Pages Posted: 26 Jul 2000 Last revised: 27 Aug 2010

See all articles by Benjamin M. Friedman

Benjamin M. Friedman

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: June 1995

Abstract

Institutional investors, including especially pension funds and mutual funds, are steadily replacing individuals as owners of equity shares in the United States. Forty years ago individual investors owned 90% of all equity shares outstanding. Today the individually owned share is just 50%. The arguments and evidence surveyed in this paper suggest four ways in which this shift in share ownership could affect the functioning of the equity market: (1) Increasing institutional ownership could either enhance or impair the market's ability to provide equity financing for emerging growth companies. (2) Increasing institutional ownership, especially in the form of open-end mutual funds, has probably increased the market's volatility in the context of occasional large price movements. (3) The increasing prevalence of defined contribution (as opposed to defined benefit) pension plans, and especially of 401-k plans, has probably resulted in an increased market price of risk. (4) Increasing institutional ownership has facilitated a greater role for shareholders in the governance of U.S. corporate business, and correspondingly reduced the independence of corporate managements.

Suggested Citation

Friedman, Benjamin M., Economic Implications of Changing Share Ownership (June 1995). NBER Working Paper No. w5141. Available at SSRN: https://ssrn.com/abstract=225206

Benjamin M. Friedman (Contact Author)

Harvard University - Department of Economics ( email )

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617-495-4246 (Phone)

National Bureau of Economic Research (NBER)

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