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Book part
Publication date: 27 September 2011

Gohar G. Stepanyan

Purpose – Examine the role of institutional investors in accelerating the development of capital markets and economies abroad, the determinants of their investment, both…

Abstract

Purpose – Examine the role of institutional investors in accelerating the development of capital markets and economies abroad, the determinants of their investment, both in the domestic and foreign markets, and their importance in promoting good corporate governance practices worldwide and facilitating increased financial integration.

Methodology/approach – Review and synthesize recent academic literature (1970–2011) on the process of international financial integration and the role of foreign institutional investors in the increasingly global financial markets.

Findings – Despite the concern that short-term flow of international capital can be destructive to the emerging and developing market economies, academic evidence on a destabilizing effect of foreign investment activity is limited. Institutional investors’ systematic preference for stocks of large, well-known, globally visible foreign firms can explain the presence of a home bias in international portfolio investment.

Research limitations – Given the breadth of the two literature streams, only representative studies (over 45 published works) are summarized.

Social implications – Regulators of emerging markets should first improve domestic institutions, governance, and macroeconomic fundamentals, and then deregulate domestic financial and capital markets to avoid economic and financial crises in the initial stages of liberalization reforms.

Originality/value of paper – A useful source of information for graduate students, academics, and practitioners on the importance of foreign institutional investors.

Details

Institutional Investors in Global Capital Markets
Type: Book
ISBN: 978-1-78052-243-2

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Article
Publication date: 17 February 2012

Yu‐Fen Chen, Sheng‐Yung Yang and Fu‐Lai Lin

The purpose of this paper is to: investigate whether the foreign institutional investors in Taiwan herd towards the stocks in the same industry; identify the causes of…

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Abstract

Purpose

The purpose of this paper is to: investigate whether the foreign institutional investors in Taiwan herd towards the stocks in the same industry; identify the causes of industrial herding; analyze whether herding behavior impacts future industrial returns; and trace the changing pattern of industrial herding, especially during the 2007‐2008 financial crisis.

Design/methodology/approach

This paper applies Sias' herding measure to identify foreign institutional industrial herding behavior. Moreover, to identify the causes and impacts of herding, the authors use regression models to analyze the relationship between foreign institutional demand for stocks in some particular industries and industrial returns, controlling industrial market capitalization, the number of firms in the industry and industrial speculative intensity. The above methods are applied to the full sample period, as well as two sub‐periods, respectively, to trace the time‐varying trading behavior.

Findings

First, on average, foreign institutional investors herd in the Taiwan securities market. They follow each other into and out of the same industries. Second, they were momentum traders in the tranquil period from 2002 to 2006 and contrarian traders in the period of 2007‐2008 financial crisis. Third, such herding behavior has positive impacts on future industrial returns both in the tranquil period as well as in turbulent time. The authors thus conclude that foreign institutional investors demonstrated contrarian trading strategies to stabilize future industrial returns in the financial crisis period; they buy past losers to support the prices and sell past winners to suppress the price volatility.

Originality/value

This paper investigates foreign institutional herding behavior in an emerging market, Taiwan on the micro setting of industrial base. It identifies the causes and impacts of foreign institutional industrial herding from the outlook of information‐base versus non‐information‐base trading. It also traces time‐varying herding behavior, especially during the 2007‐2008 financial crisis. This paper provides useful information to investors participating in emerging markets like Taiwan.

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Article
Publication date: 14 August 2021

Shoukat Ali, Ramiz Ur Rehman, Bushra Sarwar, Ayesha Shoukat and Muhammad Farooq

The purpose of this paper is to empirically investigate the impact of board financial expertise on the shareholding of foreign institutional investors in an emerging…

Abstract

Purpose

The purpose of this paper is to empirically investigate the impact of board financial expertise on the shareholding of foreign institutional investors in an emerging equity market of China and to explore whether ownership concentration moderates the relationship between board financial expertise and foreign institutional investment.

Design/methodology/approach

To test the hypothesized relationships, this study uses panel data regression models, i.e. static (fixed effect and random effect) and dynamic (two-step generalized methods of moments) models. Further, to control the possible endogeniety issue, this study uses two instrumental variables, namely, board size and industry average financial expertise of board to proxy board financial expertise. This study covers a period from 2006 to 2015 for 169 listed Chinese firms.

Findings

The results revealed that foreign institutional investors positively perceived board financial expertise and holds more shareholdings with the increasing level of financial experts at boards of directors. Moreover, ownership concentration positively moderated this relationship. It means that in highly concentrated firms, the board financial expertise conveys a stronger signal to foreign institutional investors that firms can manage financial resources rationally by controlling negative effects of ownership concentration. Further, the robustness model also confirmed the relationship between board financial expertise and foreign institutional shareholdings.

Originality/value

To the best of authors’ knowledge, this is the first study to investigate board-level financial expertise as a determinant of foreign institutional ownership. Further, no previous study has used ownership concentration as a contextual variable on the relationship between board financial expertise and foreign institutional investment.

Details

Review of International Business and Strategy, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2059-6014

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Article
Publication date: 13 October 2021

Muhammad Ilyas, Rehman Uddin Mian and Nabeel Safdar

This study examines the effects of foreign and domestic institutional investors on the value of excess cash holdings in the context of Pakistan where the institutional

Abstract

Purpose

This study examines the effects of foreign and domestic institutional investors on the value of excess cash holdings in the context of Pakistan where the institutional setting is broadly considered as non-friendly to outside shareholders due to family control.

Design/methodology/approach

A panel sample of 220 listed firms on the Pakistan Stock Exchange (PSX) was employed over the period 2007–2018. Data on institutional ownership are collected from the Standard & Poor’s (S&P) Capital IQ Public Ownership database, while the financial data are collected from Compustat Global. The study uses ordinary least squares (OLS) regression with year and firm fixed effects as the main econometric specification. Moreover, the application of models with alternative measures, high-dimensional fixed effects and two-stage least squares (2SLS) regression are also conducted for robustness.

Findings

Robust evidence was found that unlike domestic institutional investors, which do not influence the value of excess cash holdings, foreign institutional investors positively affect the contribution of excess cash holdings to firm value. The positive effect on excess cash holdings' value is mainly driven by foreign institutions domiciled in countries with strong governance and high investor protection. Moreover, this effect is stronger in firms that are less likely to have financial constraints.

Originality/value

This study provides novel evidence on the effect of institutional investors on the value of excess cash holdings in an emerging market like Pakistan. It also adds to the literature by revealing that the effect of different groups of institutional investors on the value of excess cash holdings is not homogenous.

Details

Managerial Finance, vol. 48 no. 1
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 6 August 2018

Aria Farah Mita, Sidharta Utama, Fitriany Fitriany and Etty R. Wulandari

The purpose of this paper is to examine the indirect effect of the International Financial Reporting Standard (IFRS) adoption in increasing the foreign investors

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Abstract

Purpose

The purpose of this paper is to examine the indirect effect of the International Financial Reporting Standard (IFRS) adoption in increasing the foreign investors’ ownership through the improvement of comparability of financial statements.

Design/methodology/approach

This study employs listed companies in 18 countries across Europe, Asia, Africa, and Australia with an observation period from 2003 to 2012. Unlike previous studies, this study uses a continuous variable to measure the level of IFRS adoption which is measured at the country level. This study includes countries that do not fully adopt the IFRS, partially adopt, make some delays in adoption or some modifications to IFRS.

Findings

The results show that the level of IFRS adoption has a positive effect on the comparability of financial statements. The level of IFRS adoption indirectly increases the foreign investors’ ownership through the comparability of financial statements. These results are consistent with proponents for IFRS adoption which argue that the adoption improves the comparability of financial statements that in turn attracts greater cross-border investment.

Research limitations/implications

The findings of this study need to be interpreted with caution due to limitations. Although this research provides a detail measurement on the IFRS adoption, this study only looks at three general items of difference in adopting the IFRS. “Differences in text” used in this research has not quantified detail differences for each adopted standards. Therefore, future research can use a more in-depth measurement of the IFRS adoption level that considers differences or exceptions of accounting treatment.

Practical implications

The results suggest that the standards setting bodies’ (IASB) strategy on promoting the IFRS and objectives to develop a standard that leads to increase the financial statement comparability have been achieved. This research shows that the IFRS adoption plays a role in ensuring the financial statement quality in terms of its comparability. It implies that the standard-setting bodies in every country, as one of the responsible institutions regulating the business environment, can be entrusted with a greater role in order to ensure better financial information quality.

Originality/value

This study introduces novel measurement that is more detailed in measuring the IFRS adoption level instead of applying the discrete variable approach (“adopt” and “not adopt”) performed by previous studies (DeFond et al., 2011; Tan et al., 2011; Lee and Fargher, 2010). This study does not only cover some EU countries but also covers some countries in Asia, Africa, and Australia, so it can be better at capturing the variation of the IFRS adoption outside the EU. This broader coverage will show the consistency of the benefits of IFRS adoption. This study is most closely related to that of DeFond et al. (2011). This research extends DeFond’s study with some important differences as follows: it uses output-based and firm-specific measurement of the comparability from DeFranco et al. (2011), which is deemed to be more appropriate because it represents the qualitative characteristics of financial statements from a user’s perspective, i.e., investors, who evaluate historical performance and predict future performance in their investment decisions; it uses a broader scope of institutional investors; and it covers IFRS adoption in countries outside the EU for a longer observation period.

Details

Asian Review of Accounting, vol. 26 no. 3
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 8 May 2017

Kyung Soon Kim, Jinwoo Park and Yun W. Park

The purpose of this paper is to investigate whether there is any difference across individual investors, domestic and foreign institutional investors in trading volume…

Abstract

Purpose

The purpose of this paper is to investigate whether there is any difference across individual investors, domestic and foreign institutional investors in trading volume responses to analyst reports. The authors also examine the determinants of trading volume responses using firm as well as forecast characteristics.

Design/methodology/approach

The authors use trading data from the Korean equity market. The authors divide investors into three classes of investors; namely, individual investors, domestic institutional investors, and foreign institutional investors. The authors then examine whether the trading responses to analyst reports vary across investor types, and how firm characteristics and characteristics of analyst reports influence the trading activities on the release dates across investor types.

Findings

Individual investors are the most responsive investor group, being responsive to analyst reports on small, neglected firms with large inside ownership as well as to analyst reports with optimistic forecasts. Domestic institutional investors are responsive to reports on neglected firms with high return volatility while foreign institutional investors show least responses.

Originality/value

There are few studies that investigate whether the trading responses to analyst reports vary across investor types and how firm characteristics and characteristics of analyst reports influence the trading activities on the release dates across investor types. Taking advantage of the trading volume data for the three main investor types in the Korean stock market, the authors study the trading volume responses for each investor type and make comparisons across investor types.

Details

Managerial Finance, vol. 43 no. 5
Type: Research Article
ISSN: 0307-4358

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Book part
Publication date: 27 September 2011

Narjess Boubakri, Jean-Claude Cosset and Hyacinthe Y. Somé

Institutional investors have increasingly gained importance since the early 1990s. The assets under management in these funds have increased threefold since 1990 to reach…

Abstract

Institutional investors have increasingly gained importance since the early 1990s. The assets under management in these funds have increased threefold since 1990 to reach more than US$45 trillion in 2005, including over US$20 trillion in equity (Ferreira & Matos, 2008). Further, the value of institutional investors' assets represents roughly 162.6% of the OECD gross domestic product in 2005 (Gonnard, Kim, & Ynesta, 2008). Given the magnitude of institutional investors' holdings relative to the world market capitalization, challenging questions on the economic role of these investors have been raised. One such question concerns their impact on the stability of stock markets. On the one hand, active strategies of buying and selling shares by these investors may contribute to moving stock prices away from their fundamental values. On the other hand, if all institutional investors react to the same information in a timely manner, they are in fact helping to increase market efficiency by speeding up the adjustment of prices to new fundamentals (for competing theories on the role of institutional investors, see, e.g., Lakonishok, Shleifer, & Vishny, 1992). This view of institutional investors as “efficiency drivers” generated considerable debate for many years (see, e.g., Ferreira & Laux, 2007; French & Roll, 1986).

Details

Institutional Investors in Global Capital Markets
Type: Book
ISBN: 978-1-78052-243-2

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Article
Publication date: 1 June 2015

Sin-Huei Ng

The purpose of this paper is to provide an exploration on how important are “other block-holders” in explaining the performance of family-controlled corporations in…

Abstract

Purpose

The purpose of this paper is to provide an exploration on how important are “other block-holders” in explaining the performance of family-controlled corporations in Malaysia. Three important groups of block-holders are identified for the purpose, namely the “foreign institutional investors”, the “domestic institutional investors” and the “government”.

Design/methodology/approach

The sample was drawn based on the companies listed on the Main Board of Bursa Malaysia. All the relevant block-holders’ ownership data are hand-collected from the annual reports published by the listed corporations and descriptive statistics together with regression analysis are employed.

Findings

Overall it is found that the presence of a second block-holder in family-controlled corporations leads to better performance compared to the corporations where the controlling families act as the sole block-holder. Moreover, this study finds that the identity of the block-holders with the extent of their ownership is important in explaining the performance. Specifically, “foreign institutional investors” and “government” are found to be significant in terms of the extent of their equity holdings and the performance of these corporations, respectively. Conversely, no such relationship is found in the equity holdings of “domestic institutional investors” and the corporation performance. Such finding may imply the possible limited ability and constraints faced by the “domestic institutional investors” in Malaysia to exert effective monitoring and pressure on the management for enhanced corporation performance.

Originality/value

Many studies researched the influence of family ownership on the performance of family-controlled corporations but there are limited studies conducted on the influence of “other block-holders” in affecting the performance of these corporations. This paper is an attempt to provide an initial exploration on how important are these “other block-holders” in explaining the performance of these corporations in the context of a small emerging economy, Malaysia.

Details

Asia-Pacific Journal of Business Administration, vol. 7 no. 2
Type: Research Article
ISSN: 1757-4323

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Article
Publication date: 5 February 2018

Manel Hessayri and Malek Saihi

The purpose of this paper is to analyze the firm’s capital market benefits in a high-quality information setting. More specifically, the authors address the question of…

Abstract

Purpose

The purpose of this paper is to analyze the firm’s capital market benefits in a high-quality information setting. More specifically, the authors address the question of whether the commonly documented IFRS benefits are capable of influencing inducing shareholders to increase their equity investment in adopting firms.

Design/methodology/approach

This study is performed on publicly listed firms in three emerging countries, namely, Morocco, South Africa and Turkey. The design of the ownership database allows a panel analysis for the years 2001 through 2011. The trend approach is suitable to account for concurrent effects that are unrelated to financial reporting while controlling for time-lasting behavior of investors. Overall, a minimum of four-year periods before and after the IFRS adoption date are warranted.

Findings

Overall, the findings support evidence of increases in equity holdings following a firm’s IFRS adoption. More specifically, institutional investors and institutional blockholders (both domestic and foreign) invest more heavily in the stocks of the firms that have committed to IFRS. By contrast, the authors fail to report evidence for ownership by blockholders and controlling shareholders.

Practical implications

The current empirical work should be of value to international investors, policy makers and market authorities. As for international investors facing reduced information disadvantage and comparable financial information across worldwide markets, they will find it easier to select and invest in value-creating stocks. This study may be useful for policy makers in acquiring a clear view of advantages, challenges and relevance of IFRS adoption to emerging markets. In particular, this study contributes to an understanding of potential capital market consequences of IFRS adoption. Furthermore, market authorities should be aware of the importance of institutional framework to enhance IFRS implementation and usage.

Originality/value

This work contributes to the ongoing empirical research on the intended capital market benefits of IFRS. The authors provide deeper insight into shareholdings changes of a number of key investors in a context where supply and demand of information are stained with asymmetry and mostly, influenced by differences in accounting practices. A major contribution of this study is the use of a methodological approach that outperforms commonly used approaches in the way how it considers concurrent events (compared to the shift specification) and time-lasting investor behavior (compared to the difference-in-differences analysis).

Details

Journal of Accounting in Emerging Economies, vol. 8 no. 1
Type: Research Article
ISSN: 2042-1168

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Book part
Publication date: 27 September 2011

Narjess Boubakri, Olfa Hamza and Maher Kooli

Purpose – Study the firm-level and country-level determinants of US institutional investors' holdings in American Depositary Receipts (ADRs) from emerging markets.…

Abstract

Purpose – Study the firm-level and country-level determinants of US institutional investors' holdings in American Depositary Receipts (ADRs) from emerging markets.

Methodology/approach – We use a sample of 112 firms from emerging markets that listed as ADRs between 1990 and 2005. Rather than adopting the issuer's perspective, we take in this study the point of view of the investor and we focus on the US institutional investors' participation in ADR firms.

Findings – We find that institutional investors hold higher stakes in foreign firms that are listed on more restrictive exchanges, in large, privatized, more liquid, and more transparent firms. Mutual investors and other institutional investors also prefer firms from countries with weaker institutional environments and from civil law legal tradition. Controlling for country-level determinants increases significantly the explanatory power of the model.

Social implications – Our results have important implications for firms from emerging markets seeking to attract foreign institutional investors.

Originality/value of the chapter – We focus on the motivations of investors when they choose to invest in the ADR, rather than on the ADR issuer motivation. In addition, we consider all types of institutional investors that acquire a participation in an ADR firm.

Details

Institutional Investors in Global Capital Markets
Type: Book
ISBN: 978-1-78052-243-2

Keywords

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