As Institutions Buy Up Stock...

In 1994, the proportion of shares owned by individuals reached a low-water mark of 50%, as pension funds, mutual funds, insurance companies, and other bodies stepped up their investment in the U.S. stock market. Creeping institutionalization of the nation's share ownership has many potentially troubling implications, says a Harvard economist, Benjamin M.Friedman, in a recent study.

For one thing, with investment decision-making in fewer hands, certain worthwhile new ventures may find themselves deprived of capital. The concentration of ownership may also have increased the market's volatility.

But Friedman points to one positive: Institutional owners have been able to play a big role in punishing and rewarding corporate managers, banding together in a way individual investors could not. Thus, the dominance of large owners in the U.S. stock market "has already given the traditional fiction of responsibility in corporate governance much more factual content than used to be the norm."

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