however, banks have wide powers to exercise the voting rights owned by individuals but held in trust.<sup>2</sup> Table 1

# Ownership of common stock in 1990

Percentage of outstanding shares owned

|All corporations ...................|44.5|72.9|64.0|
|---|---|---|---|
|Financial institutions ...........|30.4|48.0|22.0|
|Banks ...................|0|18.9|10.0|
|Insurance Companies ......|4.6|19.6||
|Pension<br>funds;<br>....................|20.1|19.5|1<br>l2.0|
|Other...................|5.7|J||
|Non-financial corporations|14.1|24.9|42.0|
|Individuals .............<br>......|50.2|22.4|17.0|
|Foreign ...................|5.4|4.0|14.0|
|Government ...................|0|0.7|5.0|

Sources: US Federal Reserve Flow of Funds, Japanese Flow of Funds, Deutsche Bundesbank Monthly Report.

These aggregate figures, however, reveal nothing about the concentration of ownership nor who the large shareholders are in a typical firm, which is important from a corporate control perspective. Table 2 gives some data on ownership concentration in a sample of large, listed U.S., Japanese and German nonfinancial firms. The table highlights a number of differences: first, ownership concentration varies quite widely across countries. In the U.S. the largest 5 shareholders hold on average about a quarter of the outstanding shares of the firm. Ownership concentration is significantly higher in Japan, but is by far the highest in German companies, where the holdings of the largest _5_ shareholders average over 40 percent. In addition, voting power in German firms may be more concentrated than even these data suggest. As mentioned above, banks in Germany have traditionally been given a wide latitude to vote the shares they hold in trust for smaller shareholders. Proxy votes exercised by the banks on behalf of beneficial shareholders are very important in the large German corporations, and concentrate voting rights in the hands of the banks.<sup>3</sup> This may be particularly important in those few widely held companies in Germany where small shareholders typically deposit their shares with the banks.<sup>4</sup> Finally, many large German firms exhibit a pyramid holding company structure, where ownership is concentrated in successive layers of holding 2 The law on proxy voting has been tightened over the years but it still appears to confer a wide power to banks to vote stock according to their wishes. Purrucker (1983) has estimated that 95 percent of private shareholders do not make use of their rights to instruct the bank on voting matters, leaving the bank with substantial discretionary voting power.

3 For example, of the 100 largest AGs in Germany in 1978, banks had a combined voting power (from their direct holdings and proxies) of greater than 25% in 41 of them. In the 56 AGs in which banks had a combined voting power of greater than 5% their average share of the vote was almost 57%. In the remaining 44 AGs, there existed a dominant nonbank shareholder owning greater than a 25% stake, but even among these firms, banks often held large combined voting stakes.

4 Even those companies that are widely held in terms of beneficial ownership may have their voting rights concentrated in the hands of a few banks. For example, Pfeiffer (1989) reports that throughout most of the 1980's, the big 3 universal banks controlled over half the voting rights in BASF, a widely held company.

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