So far, only limited and largely anecdotal evidence is available on the impact investment funds have on the way firms are being managed. In a forward-looking financial market, one can expect prices to incorporate the effects of better ownership on future firm performance and associated dividends to shareholders. Claessens explores this line of reasoning. Firms with many small owners have lower prices. Ownership by many small-scale investors makes it easier for any single investor to establish effective control, but such control does not necessarily translate into higher prices.
Commercial banks are both managers of investment funds and creditors of individual firms.
Funds managers may face conflicts of interest and not be interested in increasing the value of equity alone but also the value of credits. This could explain why prices are relatively lower for those firms in which investment funds have effective control. Return to Working Papers homepage.