The Extinction of Widely Held Public Companies

I confirm the prediction of Jensen (1989) that widely held public companies will become eclipsed. I draw a complete ownership structure picture for major U.S. public companies from 1994 to 2012. I document a sharp ownership concentration towards the blockholders, namely the financial institutions and private investors. The average number of blockholders has increased from 1.25 to 3.25, while their aggregate ownership has increased from 10.46 percent to 26.27 percent. Widely held public companies are about to become extinct. In 2012, only 2 percent of the major U.S. companies could be considered widely publicly held. Blockholder ownership interacts with other types of ownerships, and explains the decline in founding-family ownership and the employee ownership plan. Blockholder ownership has a significant impact on board composition and size---it increases the ratio of independent directors and decreases the ratio of insider and family directors. Blockholders play an important role in transmitting liquidity shocks to the corporations, and potentially amplifying systemic risk at the same time. Blockholder ownership has significantly changed the landscape of the ownership structure in the last three decades.

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