Diffuse Ownership in the United States: A Myth?

Ever since Berle and Means published The Modern Corporation and Private Property in 1932, diffuse ownership has been considered the norm for U.S. public corporations.  And at least since La Porta et al.’s Law and Finance (1998) and Corporate Ownership around the World (1999), this aspect of US corporate governance has been considered exceptional from a global perspective–with only the U.K. and some other developed, common-law countries showing similarly low levels of ownership concentration.

In The Myth of Diffuse Ownership in the United States, Clifford Holderness challenges this view.  Using a more representative sample of U.S. firms than have previous studies, Holderness finds that ownership concentration in the US is about the same as the world average.  Moreover, in Holderness’s data, U.S. blockholding does not look qualitatively different from the world average in terms of blockholders type (as demonstrated in Table 5) and board representation (Table 6).  These results are robust to controlling for certain firm attributes relevant to ownership concentration, such as firm size. Given the amount of research that has been based on the assumptions that Holderness challenges, his article is bound to have considerable impact.  Here’s his abstract:

This paper offers evidence on the ownership concentration at a representative sample of U.S. public firms. 96% of these firms have blockholders; these blockholders in aggregate own an average 39% of the common stock. The ownership of U.S. firms is similar to and by some measures more concentrated than the ownership of firms in other countries. These findings challenge current thinking on a number of issues, ranging from the nature of the agency conflict in domestic corporations to the relationship between ownership concentration and legal protections for investors around the world.

The full paper is available here.