Institutional Investors

Abstract

One of the most dramatic changes in the world of finance in the second half of the twentieth century has to do with the rise of institutional investors. Through their increasing control of securities market activity, mutual funds, banks, insurance companies, pension funds, and other large financially-oriented organizations have reshaped capital formation processes and have provided a new, high-powered disciplinary force on corporate managers. After providing an account of the emergence of institutional investors by tracing the development of pensions in the US, there follows a brief review of the organizational and management literature on institutional investors, which is conventionally embedded in debates about corporate control. While corporate control has provided the main focal point for the study of institutional investors in organizational theory, the article argues that future research in this area needs to account for how the rise of institutional investors is remaking capital formation processes in particular countries while also driving the construction of a more global financial market. Cross-national studies of how capital formation processes are being transformed have the potential to open up new insights about the dynamics of economy–society relations and the extent to which the contemporary globalization of financial services is forcing various countries to converge on a particular capital formation model.