
Contents
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Introduction Introduction
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A word about evidence A word about evidence
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The rise of institutional investors The rise of institutional investors
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The Pension Reform Act of 1974 and the growth of mutual funds The Pension Reform Act of 1974 and the growth of mutual funds
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The rise of agency theory The rise of agency theory
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Institutional investor support for agency theory prescriptions Institutional investor support for agency theory prescriptions
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Consequences of shareholder-value prescriptions Consequences of shareholder-value prescriptions
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Equity-based compensation for executives Equity-based compensation for executives
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Profits and risk-taking Profits and risk-taking
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Earnings management Earnings management
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Transfer of profits to executives Transfer of profits to executives
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Industrial focus Industrial focus
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Dediversification and performance Dediversification and performance
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Dediversification and job losses Dediversification and job losses
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Debt-financing Debt-financing
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Debt and corporate vulnerability Debt and corporate vulnerability
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Defunding pension funds Defunding pension funds
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Raising value by downsizing Raising value by downsizing
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Raising value by cutting pension contributions Raising value by cutting pension contributions
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Conclusion Conclusion
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References References
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6 What is a financial market? Global markets as microinstitutional and post-traditional social forms
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3 Finance And Institutional Investors
Get accessJiwook Jung is a PhD candidate in the Department of Sociology at Harvard University. His research interests include organizational and economic sociology and the sociology of financial markets. His dissertation explores how increased pressure from financial markets has reshaped the behavior of firms, focusing on workforce downsizings by large American corporations between 1981 and 2006.
Frank Dobbin is Professor of Sociology at Harvard. His Forging Industrial Policy: The United States, Britain, and France in the Railway Age (1994) traces the roots of contemporary industrial policy approaches to the institutional logics of political order in different countries. The New Economic Sociology: An Anthology (2004), ties modern economic sociology to classical sociological theory. Inventing Equal Opportunity (2010) explores how corporate human resources professionals managed to define what discrimination meant under the Civil Rights Act.
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Published:03 June 2013
Cite
Abstract
Institutional investors have come to play a central role in financial markets since the early 1970s. They controlled about three out of ten shares of Fortune 500 companies in 1970. Today they control seven out of ten. The aging of the baby boom generation, coupled with new fiduciary requirements for defined benefit pension plans, contributed to this change. Agency theory offered a litany of innovations designed to ensure that executives pursued the interests of shareholders, rather than feathering their own nests. Institutional investors promoted the theory with a vengeance, encouraging firms through shareholder proposals and private bidding to put its prescriptions into place. This article examines the role of institutional investors in promoting changes in corporate management under the banner of shareholder value. It reviews evidence that these changes did little to promote share value and that they resulted in several disadvantages for the American worker-owner.
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