Academic journal article Proceedings of the American Philosophical Society

Who Owns Stock in American Corporations? A

Academic journal article Proceedings of the American Philosophical Society

Who Owns Stock in American Corporations? A

Article excerpt

i. Introduction

It is often believed that the stock market benefits most American households. Is this true? Has the situation changed with the Great Recession? These are the major themes of the current paper. These themes are particularly prescient in light of the work of Gomory and Sylla (2013). As they report in their historical appraisal of the role of the American corporation, a radical shift away from pursuing stakeholder value to pursuing stockholder value has occurred. The former refers to the goal of attempting to benefit a range of corporate constituencies, including employees, customers, the community, and stockholders. The latter, on the other hand, is exclusively aimed at maximizing the returns on corporate stock. This shift occurred in the United States around 1980.

If this is the case and corporations are now maximizing shareholder value, who benefits from this? Are these gains widely shared in the U.S. population (shareholder democracy), or are they heavily concentrated among the rich? The empirical work contained in the current paper will shed light on this issue. Has the situation changed with the Great Recession? In particular, has the stock ownership rate and the degree of stock concentration in the population gone up or down over these years?

Before looking at the actual wealth data, it might be helpful to say a few words about what happened to both house and stock prices over the last two and half decades. Although the median house price in real terms was virtually the same in 2001 as in 1989', house prices suddenly took off from 2001-2007, with the median sales price rising by 19% in real terms. Then, the Great Recession hit and home prices plummeted by 24% in real terms from 2007-2010. This drop was followed by a partial recovery, with median house prices rising by 7.8% in real terms through September 2013, though still way below the median house price level in 2007. In contrast to the housing market, the stock market boomed during the 1990s. On the basis of the S&P 500 Index, stock prices in real terms surged 171% between 1989 and 2001.2 However, from 2001-2007, the S&P 500 was up only 6% in real terms, and during the Great Recession, it nosedived 26% in real terms. In this case, a strong recovery occurred after 2010, with stock prices up by 41% through September 2013 in real terms.

What have these asset price movements, particularly the plunge in stock prices, wrought in terms of stock ownership over the Great Recession and then recovery? This topic is the second major subject of the paper.

2. Plan of the Paper

The current paper is organized as follows. The first part provides some background on wealth trends over the last 30 years or so. The next section, Section 3, discusses the measurement of household wealth and describes the data sources used for this study over the period from 1983-2010. Section 4 presents time trends in median and average wealth holdings, Section 5 on changes in wealth concentration, and Section 6 on the composition of wealth for the same time period. In Section 7, I provide an analysis of the effects of leverage on wealth movements over time. In the second part of the paper, Section 8 provides data on the expansion of defined contribution (DC) pension plans, since this is one of the key factors explaining widening stock ownership. Section 9 then explores stock ownership trends more fully. A summary and conclusion are provided in Section 10.

The most telling finding of the first part of the paper is that median wealth plummeted by 47% over the years 2007-2010. The inequality of net worth, after almost two decades of little movement, was also up sharply between 2007 and 2010. Relative indebtedness continued to expand during the late 2000s for the middle class, though the proximate causes were declining net worth and income rather than an increase in absolute indebtedness. In fact, the average debt of the middle class in real terms was down by 25%. …

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