Abstract

Small Shareholders - The Cost Aspect of Servicing Securities

In the past twenty years, the number of sareholders in the Federal Republic of Germany has multiplied, while the average share portfolio per safe custody deposit has dropped sharply in the same period. On account of its positive macroeconomic aspect, this trend has been supported and welcomed. For issuers, however, the cost of servicing securities has consequently increased by many millions, especially since the new joint stock company act came into force. In the United States, more and more companies have gone over to purchasing their own shares from time to time. In a number of cases very small shareholders were bought out in this way, thus reducing security servicing costs and the cost of equity capital. In Germany, too, these costs could be cut by concentration of scattered holdings, but only under aggravating conditions. Such transactions can be formally treated as investment projects, as illustrated by the approaches to calculating the net cash value and the optimal scope of concentration activities. The fact that such activities have not been observed so far in Germany, is probably due mainly to the prevailing trends in German wealth policy. In any case, the problem of security costs can be solved by concentration campaigns only for individual issuers. Taken as a whole, firms are dependent on the small shareholder. Since there is a small-shareholder problem, but no small-creditor problem, the question presents itself of whether special institutions engaging in lot size transformation in the domain of shares might not operate quite as succesfully as banks in the field of credit instruments. The experience of German investment trusts suggest that the answer is negative. However, in the case of such special-purpose institutions, too, unlike unit trusts, there can be a certain garanty of profit side by side with risk transformation only by way of diversification and side by side with lot size transformation. This would bring them considerably closer to the tried and proven model of the banks.