When Financial Intermediaries are Corporate Owners: An Agency Model of Institutional Ownership
AbstractIncreasingly, the equity investments of individual investors are being channeled through financial institutions. This article posits that the role of institutional owners as financial intermediaries, and the resulting complexity that institutions bring to ownership, distinguish institutional ownership from individual ownership. I develop a model of institutional ownership, referred to as the nexus agency model (NAM), which reflects this complexity. The model provides a framework for identifying the potential additional agency costs to beneficial owners that are associated with owning via financial institutions. The degree to which owning via institutions benefits individual owners depends on the adequacy of the legal and regulatory environment and governance mechanisms in protecting individual owners' interests. The applicability of the nexus model to different institutional owner types is then demonstrated in a discussion of U.S. public and private pension plans and mutual funds, leading to the generation of a NAM-based research agenda for each type and across the types. The article ends with discussion of the model's applicability to non-U.S. institutional environments. Copyright Kluwer Academic Publishers 2000
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Bibliographic InfoArticle provided by Springer in its journal Journal of Management and Governance.
Volume (Year): 4 (2000)
Issue (Month): 3 (September)
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Web page: http://www.springerlink.com/link.asp?id=102940
agency theory; governance; institutional ownership; mutual funds; pension plans;
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