LARGE BANK STOCKHOLDERS IN GERMANY: SAVIORS OR SUBSTITUTES?

This article challenges Mark Roe's suggestion that the prevalence of the widely held public corporation in the U.S. may not have been inevitable because U.S. laws prevented financial institutions from playing the monitoring role assumed by large German banks. The differences between Germany and the U.S. in the importance of trading markets and the role of banks as monitors can be explained in large part by actions of German banks that blocked the development of German capital markets and provided big banks with informational advantages over other traders. Markets are likely to be more effective monitors than large banks because of the banks' conflicts of interest as creditors as well as underwriters and market‐makers for German firms. Moreover, there is more diversity in the ownership structure of U.S. corporations than the current governance debate would suggest. In the U.S. there are many publicly owned companies that are either closely held or have reverted to private ownership through LBOs. This in turn suggests that U.S. capital markets have devised means for bringing about concentrated stock ownership in those cases where large stockholder monitoring is likely to be more efficient. Thus, to the question what is likely to happen to U.S. corporate ownership structure if remaining legal constraints on stock ownership by U.S. banks are relaxed, the answer this article offers is “not much.” Indeed, if one considers increasing U.S. institutional ownership together with recent SEC attempts to liberalize shareholder communications, there appears to be a striking trend toward a new concentration of voting power–one that may ultimately rival that of the German banks.