ABSTRACT
Since the 1980s, institutional investors have increased their assets under management enormously. This trend has been driven both by rapidly growing equity markets and by the fact that households increasingly shifted from direct stock ownership to holdings via asset managers. Moreover, institutional investors benefited from the development that many countries changed their pension systems from “defined benefit” to “defined contribution” schemes that involve investment via asset managers (Rutterford and Hannah 2016). Through these developments, institutional investors have become large owners of publicly listed corporations in virtually all countries that have developed equity markets. This chapter focuses on how institutional investors have shaped and driven the financialization of listed companies and the financial sector itself, primarily by demanding the maximization of short-term shareholder value. The main measures to increase shareholder value have included share buybacks and special dividends as well as mergers. Additionally, many institutional investors have pushed for an alignment of (short-term) interests between managers and shareholders through stock-based forms of remuneration, thus reinforcing the financialization of listed corporations.
