The Contribution of Shareholder Primacy to the Racial Wealth Gap

Abstract

The US racial economic gap is substantial and growing, stemming from a history of racism and the importance of intergenerational transmission to wealth accumulation (Darity and Hamilton 2012); (Chiteji and Stafford 1999). Wealth equity is important because wealth permits economic freedom: the ability to invest in one’s future and the future of one’s children (Darity and Hamilton 2012). This article investigates the role of corporate equities and mutual fund ownership in increasing the racial wealth gap over time. As of the third quarter of 2019, 92.1 percent of corporate equity and mutual fund value was owned by white households. Black households owned 1.5 percent, while Hispanic households owned 1.9 percent. I use the Federal Reserve’s Distributional Financial Accounts to determine the changing impact of the corporate equity gap on the racial wealth gap, and to measure how shareholder payments—dividends and stock buybacks—are divided by race and ethnicity. This original analysis contributes to policy discussions about how to structure the rules for corporate equity ownership in society, and how to end wealth equities that are a legacy of the US’s shameful history of slavery, racism, and xenophobia.

Keywords: Corporate Equity; Distributional Financial Accounts; Racial Wealth Gap; Stock Buybacks; Wealth Inequality

JEL Classification: J15, G3, G5