4

in such holdings, however, was of conspicuously more modest proportions, amounting to only 31 percent for the preferred issues and to less than 17 percent for the commons. In terms of proportionate value, the showing was only moderately better. Adjusting for lots of exactly 100 shares on the basis of certain sample data, odd-lot shareholdings may be estimated to have represented about 82 percent of all common and around 90 percent of the total number of preferred shareholdings but to have accounted for less than 15 percent of total outstanding common and only a little over 28 percent of all outstanding preferred shares of the 1,710 corporations. On a combined basis, almost 85 percent of total common and preferred shareholdings fell into the odd-lot category but together they accounted for less than one-fifth of all outstanding shares and only a moderately higher proportion of the estimated aggregate value. The composite impression is thus distinctly one of concentration of the majority of stock among a small minority of holdings with, however, a much less marked degree of concentration among preferred than common stocks.5

In neither preferred nor common stocks was there much variation among industries in the proportion of shareholdings in lots of 100 shares or less. The most pronounced significant deviation from the norm was in the communication group where the exceptional dispersion of ownership of American Telephone & Telegraph Co. common stock was reflected in a proportion of "odd-lot" holdings close to 95 percent of the total number for the group, or about 8 points above the average. In the proportion of shares included in such holdings of 100 shares or less, on the other hand, the variations were marked among major groups and even more so among the component industrial subgroups.

Among common stocks, the proportion of shares included in "oddlot" holdings varied from an extreme of 39 percent in communication companies to 21 percent for railroad companies, a little less than 17 percent for electric, gas, and water utilities and only 15 percent for merchandising issues. For manufacturing companies, as a whole, the proportion was around 18 percent but within the group there was a variation from about 12 percent for petroleum refining issues to 25 percent for food products. Proportions for iron and steel, tobacco products and industrial machinery were close to the upper limit; for chemicals, nonferrous metals, and building materials they were near the lower level.

Proportions of preferred shares included in holdings of 100 shares or less were, except for the communication issues, rather uniformly higher in most cases, in fact, about twice as high relatively-as the proportions for common stocks in corresponding industrial groups. The railroads were the most conspicuous exception to this general two-to-one relationship. The proportion of railroad shares accounted for by holdings of 100 shares or less was about 21 percent for common stocks and only moderately higher at 25 percent for preferreds. More significant even was the shift in position of the railroad group, relative to the other major industrial categories, from approximately highest

4 From a sample based upon a little less than 5 percent of the issues, it was estimated that lots of exactly 100 shares constituted around 5 percent of the total for common shareholdings and about half that proportion for preferreds. The corresponding proportions for shares included in such holdings were somewhat less than 3 percent in each case.

Relative concentration of ownership is analyzed in some detail in ch. VI, infra.

proportion of number of "odd-lot" holdings among the common stocks to lowest proportion among the preferreds. In the preferred section the railroads yielded leadership to the electric, gas, and water utilities. in which over 94 percent of all holdings and about 35 percent of total outstanding shares were in lots of 100 shares or less.

Among common stock issues, the proportions of holdings of 100 shares or less and of the shares included in such holdings rose slowly but steadily with increase in size of the issuer corporation to a peak in the topmost group with assets of $500,000,000 or more. Among preferred stocks the tendency was more moderate in intensity and exhausted itself at a lower level."

In both common and preferred stocks the proportion of holdings of 100 shares or less tended to rise with increase in the market price per share but in neither case was there any clear-cut relationship between the proportion of "odd-lot" holdings and the market value of the average shareholding. A direct relationship was again in evidence, however, when the issues were classified by number of shareholdingsthe proportion of holdings of 100 shares or less and of the shares included in such holdings showing a general rising tendency as the number of shareholdings per issue increased.

The relative proportions of holdings of 100 shares or less and of the shares included in such holdings were about the same for all fully listed preferred stocks, regardless of where listed; among common stocks, on the other hand, such holdings were relatively as well as absolutely highest in issues listed on the New York Stock Exchange. Among preferred stocks the proportion of holdings of 100 shares or less was generally lower in listed issues than in those not listed on any exchange or admitted only to unlisted trading privileges; the proportions of shares included in such holdings were, on the other hand, about the same for all groups. In sharp contrast, such unlisted issues among the common stocks showed not much variation from listed issues in the proportion of holdings of 100 shares or less but the percentage of shares included in such holdings of unlisted issues dropped to almost insignificant proportions. In other words, the few unlisted common stocks included in this study were apparently heavily concentrated in a handful of large holdings.

• This relationship probably reflects variations in price of issue as well as differences in size of issuer since the shares of small companies generally sell at a lower price than those of large corporations. This is par ticularly true of common stocks.

CHAPTER III

THE DISTRIBUTION OF TOTAL SHAREHOLDINGS BY ESTIMATED VALUE OF INDIVIDUAL HOLDING

In tables 1 to 6 and 8 to 14 the 14,000,000 shareholdings of common and preferred stock of the 1,710 corporations were distributed by significant industry and size groups. In tables 18 to 29 emphasis is shifted to the estimated value of these holdings individually and a detailed breakdown is presented of total shareholdings by dollar value groups.

1. METHOD OF COMPUTATION

In the original schedule submitted by these companies to the Securities and Exchange Commission, the size distribution of shareholdings was based on the number of shares in each holding.1 Seven size classes (1 to 10, 11 to 25, 26 to 100, 101 to 500, 501 to 1,000, 1,001 to 5,000, and over 5,000 shares or similar groups) were available for the great majority of issues and even more detailed information for the largest companies. To convert-for purposes of comparison this classification of shareholdings for each issue from a share to a value basis, the limits of each size class were multiplied by the price per share on December 31, 1937. There was then as great variation in the value limits for each size class as there were differences in price from issue to issue.2 In order, therefore, to group different issues together it was essential to use some uniform classification. Five value classes were accordingly set up, the lowest to include all shareholdings with a value of $500 or less, the second through fourth to consist of holdings with a value of $501 to $1,000, $1,001 to $5,000, and $5,001 to $10,000, respectively, and the fifth class to comprise all holdings with a value in excess of $10,000.

In cases where the original market value range, derived by multiplying the limits of a size class in a single issue by the price per share, overlapped two or more of these five uniform value classes, shareholdings were allocated among them by interpolation. This was done on the assumption of an even distribution of shareholdings within the original size classes except for the highest group (over 5,000 shares) for which information, available in most cases on the actual size of the 20 largest shareholdings, was used as the basis for allocation. procedure results inevitably in some distortion of the actual distribution in many individual issues and for small groups of issues. However, judging from tests which have been made, the shortcomings of this method of converting size classes (in terms of number of shares)

1 These data will be discussed in ch. IV.

This

For example, the value limits of the 1 to 10 share group would be $30 and $300 for an issue selling at $30 a share, while they would be $60 and $600 for an issue selling at $60 a share.

19

into value classes of shareholdings do not appear to be serious enough to invalidate any general conclusions.

2. COMMON VERSUS PREFERRED STOCK ISSUES

Chart III shows the number of shareholdings in each of the five value classes for common and preferred stocks, separately and combined. Of the 14,000,000 combined shareholdings, 7,500,000 or a little over half of the total number had a value of $500 or less at the prices of December 31, 1937. Only 2,000,000 or 15 percent of the total were valued from $501 to $1,000; a little over 3,000,000 or 22 percent had a value of $1,001 to $5,000; and about 1,200,000 holdings, or less than 9 percent, were valued in excess of $5,000. Of this last and smallest group somewhat over 610,000 shareholdings (4%1⁄2 percent) fell within the value range of $5,001 to $10,000 and 560,000 (4 percent) had a value in excess of $10,000.

Common and preferred shareholdings both showed the highest proportion of holdings in the lowest value class ($500 or less), the smallest proportion in the highest value class (over $10,000) and a moderate secondary upswing in the intermediate $1,001 to $5,000 group. The broad pattern of distribution, in other words, was essentially the same; the proportions of total shareholdings included in the various value classes were, nevertheless, notably different. Of the 11,500,000 common shareholdings, 56 percent had a value of $500 or less and about 14 percent was valued from $501 to $1,000. Holdings with a value of $1,001 to $5,000 constituted an additional 22 percent of the total; 4 percent was valued from $5,001 to $10,000, and another 4 percent had a value in excess of $10,000. Of the 2,500,000 preferred shareholdings, on the other hand, only a little over 45 percent was valued at $500 or less but in each of the higher value classes the proportion for preferred was uniformly higher than that for common shareholdings. The difference was most appreciable in the $5,001 to $10,000 value group and almost negligible in the highest value class (over $10,000). The significant differences in proportionate distribution were thus apparently confined to holdings valued at $10,000 or less but were substantial enough to confirm impressions gained in chapter II of lesser concentration of ownership among preferred than common stocks.3

3. DIFFERENCES AMONG INDUSTRIAL GROUPS

Much greater variation occurred in distributive pattern, on the one hand, and in actual proportionate distribution of shareholdings among the various value classes, on the other hand, as the basis of classification was changed.

In preferred as well as common stocks greatest variation in both respects is apparent when shareholdings are classified by the industry of the issuer (table 18 for common, table 24 for preferred stocks). Instead of one, there are three distributive patterns evident in the industrial classification. Both deviations from the norm occur in the position of the shareholdings with a value of $1,001 to $5,000.

3 This lesser concentration of ownership among preferred than common stocks would be further confirmed if the over $10,000 class were broken down in more detail. Common stocks would then show larger proportions of shareholdings at the higher value levels.