IDEAS home Printed from https://ideas.repec.org/a/gam/jjrfmx/v18y2025i2p71-d1581969.html
   My bibliography  Save this article

The Big Three Passive Investors and the Cost of Equity Capital

Author

Listed:
  • Sebahattin Demirkan

    (Costello College of Business, George Mason University, Fairfax, VA 20230, USA)

  • Ted M. Fikret Polat

    (Costello College of Business, George Mason University, Fairfax, VA 20230, USA)

Abstract

This study investigates the role of the Big Three passive investors (BlackRock, Vanguard, and State Street) in influencing firms’ cost of equity. By examining the unique ownership structure these investors bring, the research sheds light on a pivotal yet underexplored aspect of institutional ownership and its implications for corporate financing. Using a comprehensive dataset spanning from 1997 to 2016, this study demonstrates that increased ownership by the Big Three is associated with improved disclosure practices and reduced information asymmetry, leading to a lower cost of equity. However, the study also uncovers a nuanced trade-off, as concentrated ownership may introduce liquidity risks in certain contexts. These findings bridge a critical gap in the literature by reconciling divergent perspectives on the role of passive investors and provide actionable insights for institutional investors, regulators, and corporate managers seeking to understand the broader implications of passive ownership on firm valuation and financing strategies.

Suggested Citation

  • Sebahattin Demirkan & Ted M. Fikret Polat, 2025. "The Big Three Passive Investors and the Cost of Equity Capital," JRFM, MDPI, vol. 18(2), pages 1-24, February.
    • Handle: RePEc:gam:jjrfmx:v:18:y:2025:i:2:p:71-:d:1581969
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1911-8074/18/2/71/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1911-8074/18/2/71/
    Download Restriction: no
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jjrfmx:v:18:y:2025:i:2:p:71-:d:1581969. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.