Research Paper Number

13/2010

Aviv Pichhadze

Document Type

Article

Publication Date

2010

Keywords

Block-holders; capital markets; corporate governance; institutional investors; ownership; Regulation

Abstract

Pichhadze (2010) introduced the Market Oriented Blockholder Model (MOBM) as properly describing the ownership pattern in the American equity markets. Under the model, the emerging blockholder in the American equity markets is the institutional investor (II). This poses a challenge to the shareholder primacy literature, which argues that IIs (i) have interests that coincide with the interests of the shareholder body in the public firm, (ii) promote dispersed ownership, and (iii) crusade shareholder interests domestically and internationally. I show that (i) the position of IIs as blockholders creates a paradox for both the literature and the law, (ii) IIs have interests that do not coincide with those of other shareholders, and (iii) failure to recognize these observation vis-à-vis IIs or the MOBM may result in the introduction of a systemic risk into the financial system.

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