EMPLOYEE SHAREHOLDERS OR INSTITUTIONAL INVESTORS - WHEN CORPORATE MANAGERS REPLACE THEIR STOCKHOLDERS

During the past decade, the shares of publicly traded companies moved increasingly into the hands of institutional investors. As large inves tors pressed companies to restructure, companies were observed in turn to restructure their shareholder base. Drawing on a 1989 survey of 76 1 US publicly traded companies, firms facing a hostile takeover enviro nment or with large institutional holdings are found to seek greater e mployee stockholding. Large firms and those that had adopted takeover defences are more likely when threatened with takeovers or short-term pressures to seek more employee and less institutional stockholding. T hough managers are employed by owners, investor efforts to discipline their managers can lead the latter to replace the former.