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When Financial Intermediaries are Corporate Owners: An Agency Model of Institutional Ownership

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  • Marguerite Schneider

Abstract

Increasingly, 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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  • Marguerite Schneider, 2000. "When Financial Intermediaries are Corporate Owners: An Agency Model of Institutional Ownership," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 4(3), pages 207-237, September.
    • Handle: RePEc:kap:jmgtgv:v:4:y:2000:i:3:p:207-237
    DOI: 10.1023/A:1026586429071
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    Cited by:

    1. Andreani, Ettore & Neuberger, Doris, 2004. "Relationship finance by banks and non-bank institutional investors: A review within the theory of the firm," Thuenen-Series of Applied Economic Theory 46, University of Rostock, Institute of Economics.
    2. Gaetano M. Golinelli & Gianluca Vagnani, 2002. "Corporate Governance as a Viable System: The Role of Intra and Inter-Systemic Relationships," Symphonya. Emerging Issues in Management, Niccolò Cusano University, issue 2 Corpora.
    3. Hsien-Chang Kuo & Lie-Huey Wang, 2015. "Do Network Linkages affect Financial Leverage ? A Group Governance Perspective," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 50-69, December.
    4. Hsien-Chang Kuo & Lie-Huey Wang & Hui-Wen Liu, 2012. "Corporate Governance and Capital Structure:Evidence from Taiwan SMEs," Review of Economics & Finance, Better Advances Press, Canada, vol. 2, pages 43-58, August.
    5. Doris Neuberger, 2005. "What’s Common to Relationship Banking and Relationship Investing? Reflections within the Contractual Theory of the Firm," Finance 0510001, University Library of Munich, Germany.
    6. Doris Neuberger, 2005. "What’s Common to Relationship Banking and Relationship Investing? Reflections within the Contractual Theory of the Firm," Finance 0503001, University Library of Munich, Germany.
    7. Erik Lehmann & Jürgen Weigand & Susanne Warning, 2004. "Governance Structures, Efficiency, and Firm Profitability," Papers on Entrepreneurship, Growth and Public Policy 2004-22, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    8. Marguerite Schneider & Lori Ryan, 2011. "A review of hedge funds and their investor activism: do they help or hurt other equity investors?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 15(3), pages 349-374, August.
    9. Doris Neuberger, 2005. "What’s Common to Relationship Banking and Relationship Investing? Reflections within the Contractual Theory of the Firm," Finance 0510003, University Library of Munich, Germany.

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