CHAPTER I

SCOPE OF STUDY AND NATURE OF DATA

1. SCOPE OF STUDY

The 1,710 corporations covered in this study are represented by 2,381 common and preferred stock issues. Only those issues of each company were included in which there was a significant public interest and for which a reasonable market price was obtainable within a limited period around December 31, 1937.1 The most important single group of issues excluded because of this limitation were the common and preferred stocks wholly owned by a single other corporation or individual. A small additional number of issues was excluded for various other reasons, mainly incompleteness or inadequacy of the original data. Coverage finally was as follows: For 1,377 of the 1,710 corporations all outstanding common and preferred stock issues are included. For an additional 195 companies data are presented for common shareholdings and, except for a few cases, for holdings of all outstanding preferred issues, other than those wholly owned or very closely held. For 138 corporations, complete data are presented for preferred shareholdings but none for the outstanding common stock issues, 96 of which were entirely owned, for all practical purposes, by a single individual, a privately owned company, or a publicly owned corporation (all but 6 of which were themselves covered in the study). Almost two-thirds of the common stock issues and about one-half of the preferred stock issues omitted because of ownership by a limited group were those of electric, gas, and water utilities, mostly operating companies which formed part of a holding company set-up.

Around the end of 1937 there were almost 14,000,000 record shareholdings of the 2,381 common and preferred stock issues covered, which together comprised about 2,000,000,000 common and preferred shares with an estimated aggregate value of a little over $42,000,000,000. Inclusion of those stock issues omitted would have increased the combined number of shareholdings by only one-half of 1 percent and the aggregate number of outstanding shares by a little over 5 percent. Judging by the type of issue excluded, one would seem warranted in assuming a small increase in total market value as well from this source. For all practical purposes, therefore, coverage of the outstanding issues of the 1,710 corporations is sufficiently comprehensive to warrant acceptance without important qualification of the conclusions drawn.

1 In the study of the 200 largest nonfinancial corporations all outstanding common and preferred stock issues of each of the corporations were included. In cases where a market price was unobtainable, book value was accepted as a substitute if reasonable; where book value was unusable, a somewhat arbitrary value was assigned on the basis of the price of similar securities and earnings. This procedure was not adhered to in this study because it was not feasible to value with accuracy the much larger number of such issues occurring here.

1

2. DISTRIBUTION OF THE 1,710 CORPORATIONS BY SIZE OF ASSETS AND INDUSTRY OF ISSUER

Total assets of the 1,710 corporations, based upon consolidated balance sheets around the end of 1937, amounted to about $103,000,000,000. There were 14 corporations with assets over $1,000,000,000 each, 48 with assets in excess of $500,000,000, and 201 companies with assets of $100,000,000 or more. This small group, comprising but 12 percent of the total, accounted for almost 80 percent of the combined assets of all 1,710 corporations. In the largest 1 percent alone that is, the largest 17 corporations-there was concentrated almost 27 percent of the total assets. Conversely, it took the smallest 644 corporations, or about 38 percent of the total number, to account for 1 percent of the combined assets and 88 percent of the corporations was needed to aggregate 20 percent of the total assets. About 57 percent had assets under $10,000,000 each, another 25 percent fell into the $10,000,000 to $50,000,000 group and 6 percent ranged in size from $50,000,000 to $100,000,000.2

Distributed on an industrial basis (table 17), about one-quarter of the $103,000,000,000 total of assets was accounted for by railroads and another 25 percent by the electric, gas, and water utilities; about 8 percent fell into the communication group and a little over 4 percent represented financial and investment companies. Manufacturing corporations accounted for 31 percent out of the remaining 38 percent of assets. Over 60 percent of the assets in the manufacturing group was represented by six dominant subgroups which comprised less than one-fifth of all the manufacturing corporations included, namely, petroleum refining, iron and steel, nonferrous metals, automobiles and trucks, heavy chemicals, and meat packing.

Viewed in relation to all domestic corporations, the 1,710 companies, though constituting less than 2 percent of the total number, accounted for between 35 and 40 percent of the aggregate assets of all such corporations submitting balance sheets to the Bureau of Internal Revenue. Asset coverage exceeded 50 percent in a good number of instances, in particular, railroads; electric, gas, and water utilities; and among the industrials, petroleum refining, iron and steel, automobiles and parts, heavy chemicals, tobacco products, and meat

2 The detailed distribution by size of the 1,710 corporations is given below: Corporations grouped by asset size

3 Both the figures for the aggregate assets of the 1,710 corporations and for those corporations reporting to the Bureau of Internal Revenue include certain duplications resulting from inter-corporate shareholdings, loans, and other transactions.

packing. In textiles, paper and printing, and leather manufacturing, asset coverage amounted to only about 10 percent of the total but it was somewhat more substantial in merchandising, particularly among chain stores.

3. DISTRIBUTION OF THE 2,381 COMMON AND PREFERRED STOCK ISSUES BY LISTING STATUS, ASSET SIZE, AND INDUSTRY OF ISSUER, AND MARKET PRICE

The 2,381 size distributions of shareholdings of common and preferred stock in the 1,710 corporations were divided into two groups, one for 1,584 common stock issues representing 1,572 corporations, and the other for 797 preferred stock issues representing 645 corporations of which all but 138 were duplicated in the common stock analysis.* Lack of a one-to-one correspondence between number of corporations and issues is explained by the fact that 12 of the corporations had two common stocks outstanding one voting, the other non-voting yet without any preferential rights-and an even larger number of corporations had more than one preferred stock outstanding.

Of the 1,584 common stock issues, 20 were not listed on any exchange, an additional 10 were admitted to unlisted trading privileges only, and the remaining 1,554 issues were fully listed on some national securities exchange. The fully listed group comprised 98 percent of the total 1,584 issues, subdivided as follows: 44 percent listed on the New York Stock Exchange, about 19 percent listed on the New York Curb Exchange, and 35 percent listed only on exchanges outside of New York. Of the 797 preferred stock issues, 84 were not listed on any exchange, 42 others were admitted to unlisted trading privileges only, and 671 issues-84 percent of the total were fully listed on some national securities exchange. The smaller proportion of fully listed preferred stocks, as compared with commons, was reflected entirely in relatively lower percentages of listings on exchanges other than the New York Stock Exchange.

Of the total 1,584 common stocks almost 60 percent was issued by corporations with assets of $10,000,000 or less, an additional 30 percent represented companies with assets of $10,000,000 to $100,000,000 and only about 11 percent was issued by corporations of over $100,000,000 in size. Of the 797 preferred stocks, on the other hand, only about 31 percent was accounted for by corporations with assets up to $10,000,000, a little over 42 percent was issued by companies ranging from $10,000,000 to $100,000,000 in size and 27 percent represented corporations with assets of over $100,000,000.

Álmost 92 percent of the total number of issues, among both common and preferred stocks, was concentrated in these six major industrial groups: Manufacturing; electric, gas, and water utilities; railroads; merchandising; financial and investment; and extractive. The manufacturing group alone accounted for over 55 percent of all common stock issues and about 42 percent of total preferred stock issues. The extractive industry ranked second in proportion of common stock issues (13.6 percent) and last in percentage of preferreds

4 By definition, an issue was assigned to the preferred stock category if it was preferred as to assets and/or dividends over any other outstanding issue of the corporation in question. This definition resulted in inclusion among the preferred stocks of 77 class "A" stocks, very often designated by the corporation as common stocks, but by nature of their preference provisions-usually over the voting common stock in lieu of voting privileges-justifiably regarded as preferreds.

(2.6 percent); the electric, gas, and water utilities ranked lowest among the six groups in proportion of common stock issues (3.6 percent) and second highest in percentage of preferreds (22.0 percent).

As of December 31, 1937, almost 56 percent of the total 1,584 common stock issues was priced at under $10 per share. About 31 percent ranged from $10 to $30 per share, 8 percent fell within the $30 to $60 price range, and only 5 percent was priced at $60 or more per share. Of the 797 preferred stocks, less than 18 percent sold at under $10 per share and only about 23 percent was priced from $10 to $30. On the other hand, almost 19 percent fell within the $30 to $60 range and somewhat over 40 percent was priced at $60 or over per share.

4. SOURCE AND NATURE OF SHAREHOLDINGS DATA

Most of the material on which this study is based was made available to the Temporary National Economic Committee, without identification of the data referring to individual corporations, by the Securities and Exchange Commission which had collected it through a questionnaire sent early in 1938 to companies with one or more issues of securities listed on a national securities exchange and, therefore, subject to registration under the Securities Exchange Act of 1934.5 This portion of the data refers to the period between November 15, 1937, and March 15, 1938. Important gaps in the basic material caused by the failure of some large companies to comply with the original request were filled from direct reports made to the Committee in connection with the study of distribution of stock ownership of the 200 largest nonfinancial corporations. In these latter cases the requirement as to time of report had been relaxed somewhat, with the result that some of the material refers to periods as late as the spring of 1940. However, the predominance of the earlier data is such that the material can be regarded for most purposes as reflecting the situation prevailing around the end of 1937. To conform with the greater mass of the data obtained from the Securities and Exchange Commission, the 15 unlisted companies among the 200 largest nonfinancial corporations were excluded and this study was limited to companies with securities listed on a national securities exchange. These data, as originally submitted, were expressed throughout in terms of number of shares corresponding to certain size groups of holdings. Except for the elimination of treasury stock in most instances, no adjustments were, therefore, necessary for the tables showing aggregate number of shares by size of shareholdings (tables 1 to 6, 9 to 14, and 30 to 41). For analysis of the distribution of these shareholdings by value, on the other hand (tables 18 to 29), the original data were converted on the basis of the price per share at the

For some preliminary summaries see "Selected Statistics on Securities and on Exchange Markets" (August 1939), pp. 22-26, a report to the Securities and Exchange Commission by the Research and Statistics Section of the Trading and Exchange Division.

Treasury stock was eliminated from shares outstanding and shareholdings except in the few cases where it was expressly held as an investment or reserved for a definite corporate purpose.

end of 1937. The method used for this conversion is explained in chapter III.

All of this material on the number of shareholdings and shares included in certain size groups of holdings was obtained from the records of the corporations or their transfer agents. Inherent in this source is an important limitation which should be given due recognition in appraising the implications of these shareholdings data. The information, as thus reported, treats in identical fashion the registered holdings of beneficial owners and those of nominees such as banks, brokers or trustees, without any recognition of the fact that such nominees represent a group of stockholders, the number of whom in many instances is probably quite substantial. In other words, this study deals throughout with record shareholdings and not beneficial shareholdings. There is, as a result, some understatement of the actual number of individual shareholdings in the corporations covered and, more important, some overstatement of the degree of concentration of ownership existing among the beneficial owners of the stocks of these corporations.

As regards the first deficiency of the data: On the basis of estimates developed from a small sample of the 200 largest nonfinancial corporations, it may be estimated that the number of beneficial shareholdings. in these 1,710 corporations was probably about one-eighth higher than the number of record shareholdings, that is, that it amounted to almost 16,000,000 rather than to around 14,000,000. Similarly, from another sample of the 200 largest nonfinancial corporations, the conclusion was reached that, on the whole, the distribution of ownership was probably only slightly less concentrated on the basis of beneficial ownership than on the basis of record ownership, though the difference might be substantial in individual issues. Since the factor accounting for the second deficiency-namely, the tendency for shares owned in relatively small blocks by numerous individual stockholders to appear as a smaller number of relatively large shareholdings standing in the names of such nominees as brokers and banks -is probably most strongly at work among the largest and most widely-held corporations, it seems likely that there is even less overstatement of the degree of concentration of ownership in the 1,710 corporations as a whole than was found to exist in the 200 largest nonfinancial companies.

Finally a word may be said as to the reasons for the use of the term "shareholdings" rather than "stockholders." In speaking of a single issue, one usually refers to published figures for record shareholdings as

'Prices as of approximately December 31, 1937, were assigned uniformly to all distributions regardless of the specific date to which they applied. This procedure was believed justified by the observation, confirmed by the experience of a number of corporations, that the number of shares outstanding and, particularly, the size distribution of holdings undergo little significant change with the passage of time except under extraordinary circumstances.

In the study of the 200 largest nonfinancial corporations it was possible to go from record to beneficial ownership for certain large holdings, though not for the mass of registered holdings.

See "The Distribution of Ownership in the 200 Largest Nonfinancial Corporations", ch. II, appendix I.