Hidden Power of the Big Three? Passive Index Funds, Re-Concentration of Corporate Ownership, and New Financial Risk
Open accessAbstract
Since 2008, a massive shift has occurred from active towards passive investment strategies. The passive index fund industry is dominated by BlackRock, Vanguard, and State Street, which we call the ‘Big Three’. We comprehensively map the ownership of the Big Three in the United States and find that together they constitute the largest shareholder in 88 percent of the S&P500 firms. In contrast to active funds, the Big Three hold relatively illiquid and permanent ownership positions. This has led to opposing views on incentives and possibilities to actively exert shareholder power. Some argue passive investors have little shareholder power because they cannot ‘exit’, while others point out this gives them stronger incentives to actively influence corporations. Through an analysis of proxy vote records we find that the Big Three do utilize coordinated voting strategies and hence follow a centralized corporate governance strategy. However, they generally vote with management, except at director (re-)elections. Moreover, the Big Three may exert ‘hidden power’ through two channels: First, via private engagements with the management of invested companies; and second, because company executives could be prone to internalizing the objectives of the Big Three. We discuss how this development entails new forms of financial risk.
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The combined holdings of BlackRock, Vanguard, and State Street make them the largest investor of 88% of all firms in the S&P 500.
“Fichtner, Heemskerk, and Garcia-Bernardo (2016) calculate that the combined holdings of BlackRock, Vanguard, and State Street make them the largest investor of 88% of all firms in the S&P 500.”
From Anticompetitive Effects of Common Ownership (2018) · cites this paper as Fichtner, Heemskerk, and Garcia-Bernardo (2016)
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Anticompetitive Effects of Common Ownership
AZAR, J., SCHMALZ, M. C., & TECU, I. (2018) · The Journal of Finance · doi:10.1111/jofi.12698 · Cited by 980 · see citing works
- Authors
- Fichtner, J., Heemskerk, E. M., & Garcia-Bernardo, J.
- Affiliations
- University of Amsterdam (NL)
- Corresponding author
- Fichtner, Jan
- Venue
- Business and Politics
- Publisher
- Elsevier BV
- Published
- 2016
- Volume
- 19
- Issue
- 2
- Pages
- 298-326
- ISSN
- 1369-5258 (ISSN-L)
- OpenAlex
- W3121644920
- Cited by
- 453
- References
- 0
- Citations by year
- 2026: 28 · 2025: 49 · 2024: 65 · 2023: 39 · 2022: 70 · 2021: 65 · 2020: 29 · 2019: 65 · 2018: 24 · 2017: 14 · 2016: 2 · 2014: 2 · 2013: 1
- FWCI
- 116.96
- Type
- journal article
- Language
- en
- Open access
- hybrid
- doi.org
- Licence
- cc-by
- Locations
- Business and Politics (publishedVersion, cc-by)
- SSRN Electronic Journal (acceptedVersion)
- RePEc: Research Papers in Economics (submittedVersion, cc-by)
- UvA-DARE (University of Amsterdam) (submittedVersion, cc-by)
- Data Archiving and Networked Services (DANS) (submittedVersion, other-oa)
- Funders
- European Commission (HORIZON2020, 638946)
- Topics
- Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
- Social Sciences › Business, Management and Accounting › Strategy and Management › State Capitalism and Financial Governance
- Keywords
- passive index funds, BlackRock, Vanguard, State Street, shareholder power, proxy voting, corporate governance, ownership concentration, shareholder engagement, financial risk, S&P 500 firms, active vs passive investing
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