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Book part
Publication date: 4 April 2024

De-Wai Chou, Pi-Hsia Hung and Lin Lin

This study focuses on listed and over-the-counter (OTC) companies in the Taiwan Stock Exchange. It found that an increase in the ownership proportion of institutional investors…

Abstract

This study focuses on listed and over-the-counter (OTC) companies in the Taiwan Stock Exchange. It found that an increase in the ownership proportion of institutional investors (INs), including foreign investors, investment trusts, and dealers can enhance the informativeness of stock prices. The relationship between these factors follows an inverted U-shaped pattern, indicating that excessively high ownership ratios can actually lead to a decrease in the informativeness of stock prices. Additionally, increasing the ownership proportions of foreign investors and investment trusts can reduce the risk of stock price collapse, while dealers show no significant relationship in this regard. This study also reveals that the technical variable of the price deviation rate is an important explanatory factor for post-collapse returns. It is positively correlated with the magnitude of the price decline after a collapse, meaning that stocks with weaker pre-collapse performance experience larger post-collapse declines. When the data during the 2020 pandemic period are excluded, changes in foreign ownership ratios show a significant positive correlation with postcrash returns in both the long and short term. The significant correlation in the short term may be due to a high proportion of foreign ownership. Any reduction in this could put pressure on stock prices, and retail investors may follow suit and sell-off, using foreign investors as a reference. The significant correlation in the long term might be due to foreign investors themselves possibly also trying to avoid the pressure that their own short-term sell-offs could exert on stock prices. The changes in the ownership ratios of investment trusts and dealers indicate that medium and long-term changes have a significant impact on postcrash returns, while the changes in the major players' ownership show no significant correlation. When data from 2020 are included in the analysis, the significance of all INs decreases.

Details

Advances in Pacific Basin Business, Economics and Finance
Type: Book
ISBN: 978-1-83753-865-2

Keywords

Open Access
Article
Publication date: 23 February 2024

Bonha Koo and Ryumi Kim

Using the next-day and next-week returns of stocks in the Korean market, we examine the association of option volume ratios – i.e. the option-to-stock (O/S) ratio, which is the…

Abstract

Using the next-day and next-week returns of stocks in the Korean market, we examine the association of option volume ratios – i.e. the option-to-stock (O/S) ratio, which is the total volume of put options and call options scaled by total underlying equity volume, and the put-call (P/C) ratio, which is the put volume scaled by total put and call volume – with future returns. We find that O/S ratios are positively related to future returns, but P/C ratios have no significant association with returns. We calculate individual, institutional, and foreign investors’ option ratios to determine which ratios are significantly related to future returns and find that, for all investors, higher O/S ratios predict higher future returns. The predictability of P/C depends on the investors: institutional and individual investors’ P/C ratios are not related to returns, but foreign P/C predicts negative next-day returns. For net-buying O/S ratios, institutional net-buying put-to-stock ratios consistently predict negative future returns. Institutions’ buying and selling put ratios also predict returns. In short, institutional put-to-share ratios predict future returns when we use various option ratios, but individual option ratios do not.

Details

Journal of Derivatives and Quantitative Studies: 선물연구, vol. 32 no. 1
Type: Research Article
ISSN: 1229-988X

Keywords

Article
Publication date: 11 July 2023

Patrick Velte

This paper aims to review empirical research on the relationship between institutional ownership (IO) and board governance (85 studies).

Abstract

Purpose

This paper aims to review empirical research on the relationship between institutional ownership (IO) and board governance (85 studies).

Design/methodology/approach

Based on agency and upper echelons theory, the heterogeneous monitoring function of specific types and the nature of institutional investors on board composition, compensation and chief executive officer (CEO) characteristics will be focused.

Findings

The author found that most studies have referred to archival studies, analyzed the impact of board governance on IO, focused on CEO characteristics, neglected IO heterogeneity and advanced regression models to address endogeneity concerns. In line with the theoretical framework, the relationship between total IO and board governance is heterogeneous. However, specific types such as foreign, dedicated and pressure-resistant institutions represent active monitoring tools and push for increased board governance.

Research limitations/implications

The author provided useful recommendations for future research from a content and methodological perspective, e.g. the need for analyzing the impact of IO on sustainable board governance and other characteristics of top management team members, e.g. the chief financial officer.

Practical implications

As many regulatory bodies implemented regulations to promote shareholder rights and board governance, this literature review highlights the connections of both corporate governance mechanisms. Managers should conduct a careful and timely investor analysis and change the composition and compensation of the board of directors in line with institutional investors’ preferences.

Originality/value

This analysis makes useful contributions to prior research by focusing on IO and board governance, whereas the author structured the heterogeneous variables and results within the structured literature review. The authors guides researchers, regulatory bodies and business practice in this corporate governance topic.

Details

Corporate Governance: The International Journal of Business in Society, vol. 24 no. 2
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 27 June 2023

V. Veeravel, Pradiptarathi Panda and A. Balakrishnan

The present study aims to verify whether there is a positive (negative) role being played by the institutional investors on the loss-making companies' performance.

Abstract

Purpose

The present study aims to verify whether there is a positive (negative) role being played by the institutional investors on the loss-making companies' performance.

Design/methodology/approach

The authors employ panel data regression and two-step system generalised method of moments (SYS-GMM) to test the above objective.

Findings

The empirical results clearly show that no positive relation is found between institutional investors and loss-making companies' performance.

Research limitations/implications

The findings of the study might have significant implications for firms to improve the firms' operational performance [return on assets (ROA)]. Also, the firm's financial performance [return on equity (ROE)] could be improved by increasing profitability which will reflect in the share prices of the firms whereby the performance can build the investors' confidence over the firm. Market performance (Tobin's Q) could be increased by providing more attractive offers and discounts to customers to capture the business opportunities available in the market.

Practical implications

The overall findings might have for reaching implications in the manufacturing sector with regard to allowing (disallowing) institutional investors.

Social implications

The results of the study may help both companies and institutional investors.

Originality/value

This is the maiden attempt to study whether loss-making companies could be positively (negatively) impacted by the arrival of sophisticated institutional investors [foreign institutional investors (FIIs) and domestic institutional investors (DIIs)]. Further, this study is largely different from previous studies in terms of using new variables which are related to firm characteristics and valuation multiples. Further, seeing if the institutional investors tend to enhance the firm performance is curious.

Details

Managerial Finance, vol. 49 no. 12
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 12 September 2023

Muhammad Ilyas, Rehman Uddin Mian and Affan Mian

Using a comprehensive sample from developed and emerging economies, this study aims to examine whether foreign institutional investors (FIIs) enhance the value of excess cash by…

Abstract

Purpose

Using a comprehensive sample from developed and emerging economies, this study aims to examine whether foreign institutional investors (FIIs) enhance the value of excess cash by constraining the potential self-appropriating managerial propensity related to its inefficient utilization.

Design/methodology/approach

This study uses a large panel data set of firms from 32 non-US countries from 2007 to 2018. Using data from COMPUSTAT Global and S&P Capital IQ, this study uses ordinary least squares regression with year- and firm-fixed effects for the baseline analysis. In addition, two-stage least squares with instrumental variable regression and propensity score matching approaches were used to address the potential endogeneity.

Findings

This study shows that FIIs significantly increase the value of excess cash holdings. The authors also found that the positive impact of FIIs is more significant when investors come from common-law countries with better governance and investor protection. Furthermore, in countries and firms with weaker governance controls, the relationship between FIIs and the value of excess cash is stronger, consistent with the institutional monitoring hypothesis. Collectively, the findings imply that FIIs are advantageous to investees because they effectively promote the efficient deployment of corporate resources.

Practical implications

Collectively, the findings of this study imply that FIIs are advantageous to investees because they effectively promote the efficient deployment of corporate resources.

Originality/value

This study offers new evidence on how FIIs impact the value of excess cash in an international setting. In addition, it highlights the significance of the legal origin of institutional investors’ home country and the governance quality of host countries and investee firms in influencing the effect of foreign institutional monitoring on the value of excess cash.

Details

International Journal of Accounting & Information Management, vol. 31 no. 5
Type: Research Article
ISSN: 1834-7649

Keywords

Article
Publication date: 22 December 2023

Muhammad Ilyas, Rehman Uddin Mian and Affan Mian

This study examines whether and how the legal origin of foreign institutional investors (FIIs) impacts corporate investment efficiency.

Abstract

Purpose

This study examines whether and how the legal origin of foreign institutional investors (FIIs) impacts corporate investment efficiency.

Design/methodology/approach

The study employs a large panel dataset of firms from 32 non-USA countries from 2005 to 2018. Financial and institutional ownership data are obtained from the COMPUSTAT Global and Public Ownership databases in S&P Capital IQ, respectively. The study employed ordinary least squares (OLS) regression with year and firm fixed effects. In addition, two-stage least squares with instrumental variable regression (2SLS-IV) and propensity score matching (PSM) approaches were employed to address the potential endogeneity.

Findings

The findings of this study suggest that common- and civil-law FIIs differ in their monitoring capabilities to promote investment efficiency. The authors find evidence that increased equity ownership by common-law FIIs, not civil-law investors, strengthens the investment-Q sensitivity, resulting in higher investment efficiency. Consistent with the monitoring and information channel, the results further indicate that the positive impact of common-law FIIs on investment efficiency is stronger in host environments susceptible to agency conflicts and information asymmetry.

Originality/value

This study offers novel evidence on the heterogeneous monitoring role of FIIs with regard to their home countries' legal origins and their impact on investment efficiency in an international context.

Details

International Journal of Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 2 January 2024

James Routledge

This paper examines whether the adoption of Japan’s Stewardship Code by institutional investors influences their preference for investee companies' governance quality. The Code…

Abstract

Purpose

This paper examines whether the adoption of Japan’s Stewardship Code by institutional investors influences their preference for investee companies' governance quality. The Code, introduced by the Financial Services Agency in 2014, promotes constructive engagement between institutional investors and investee companies. Engagement with investees should improve institutional investors' ability to assess governance quality across their portfolios. The paper examines if this results in a positive relationship between the levels of Code-compliant institutional shareholding and investee governance quality.

Design/methodology/approach

The association between Code-compliant institutional shareholding levels and a governance quality score is examined for Nikkei 500 companies.

Findings

A positive association is observed between shareholdings by Code-compliant institutional investors and investee governance, with board independence playing a key role. Analysis shows that the association between institutional shareholding and governance is stronger for the Code-compliant shareholding than for overall institutional shareholdings. In addition, no significant relationship is found between the levels of shareholding by non-Code-compliant institutional investors and the governance quality score of investee companies. Taken together, the results suggest that Code adoption strengthens institutional investors' preference for high-quality investee governance.

Originality/value

Despite the introduction of stewardship regulation worldwide, there is a scarcity of empirical research that examines its operation. The study contributes to the existing literature by providing insights into how compliance with stewardship regulation influences institutional investor decision-making.

Details

Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 9 October 2023

Shallu Batra, Mahender Yadav, Ishu Jindal, Mohit Saini and Pankaj Kumar

This study aims to examine the impact of institutional investors and their classes on the stock return volatility of an emerging market. The paper also determines the moderating…

Abstract

Purpose

This study aims to examine the impact of institutional investors and their classes on the stock return volatility of an emerging market. The paper also determines the moderating role of firm size, crisis and turnover on such relationships.

Design/methodology/approach

The study covers nonfinancial companies of the Bombay Stock Exchange-100 index that are listed during the study period. The study uses fixed effects and systematic generalized method of moments estimators to look over the association between institutional investors and firms’ stock return volatility.

Findings

The study provides evidence that institutional investors destabilize the Indian stock market. It indicates that institutional investors do not engage in management activities; they earn short-term gains depending on information efficiency. Pressure-insensitive institutional investors have a significant positive relation with stock return volatility, while pressure-sensitive institutional investors do not. The study also reflects that pressure-sensitive institutional investors are underweighted in India, which jointly represents an insignificant nonlinear association between institutional ownership and stocks’ volatility. Furthermore, outcomes reveal that the intersection effect of the crisis, firm size and turnover is positively and significantly related to such relationships.

Research limitations/implications

The outcomes encourage initiatives that keep track of institutional investors in the Indian stock market. To control the destabilizing effect of pressure-insensitive institutional investors, regulators should follow strict regulations on their trading patterns. Moreover, it guides the potential researchers that they should also take into account the impact of other classes of ownership structure or what type of ownership can help in stabilizing or destabilizing the Indian stock market.

Originality/value

Abundant literature studies the relationship between institutional ownership and firm performance in the Indian context. From the standpoint of making management decisions, the return and volatility of stock returns are both different aspects. However, this study examines the effect of institutional ownership and its groups on the volatility of stock return using the panel data estimator, which was previously not discussed in the literature.

Details

Multinational Business Review, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1525-383X

Keywords

Article
Publication date: 19 October 2023

Peter Nderitu Githaiga

The purpose of this study was to examine the moderating role of institutional ownership on the relationship between board gender diversity and earnings management (EM) among…

Abstract

Purpose

The purpose of this study was to examine the moderating role of institutional ownership on the relationship between board gender diversity and earnings management (EM) among listed firms in East African Community (EAC) partner states.

Design/methodology/approach

The study used a sample of 71 firms listed in the EAC partner states over 2011–2020. Data were handpicked from the individual firm's audited annual financial reports. Based on the results of the Hausman test, the study used the results of the fixed-effect regression model to test the hypotheses. To test the robustness of the results, the study employed an alternative measure of EM and two additional econometric techniques, including the pooled ordinary least squares (OLS) and the system generalized method of moments (GMM).

Findings

The empirical findings revealed that female directors improve the board's effectiveness in monitoring managerial roles. Specifically, the results showed a significantly negative relationship between the proportion of women in the corporate board and EM (as measured by discretionary accruals (DAs)). The findings further revealed an inverse relationship between the proportion of institutional ownership and EM. Finally, the results further demonstrated that institutional ownership enhances the role of board gender diversity in mitigating EM among listed firms in the EAC.

Practical implications

The findings of this study may be useful to managers, investors and regulators in assessing the role of institutional ownership and women's participation on corporate boards as a strategy for alleviating unethical manipulation of earnings.

Social implications

The findings of this study contribute to the growing concern on gender inequality, especially the marginalization of women from the paid labor force and decision-making. The findings highlight the importance of having more women in the corporate board since this may help in mitigating corporate fraud. Similarly, the findings highlight the importance of institutional ownership as a corporate governance (CG) tool.

Originality/value

Previous studies have reported mixed empirical results on whether board gender diversity mitigates EM. To the best of the author's knowledge, this is the first paper to fill the existing gap by exploring whether institutional ownership moderates the relationship between board gender diversity and EM among listed firms in the EAC.

Details

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

Keywords

Article
Publication date: 13 October 2023

Yuan Jiang, Emma García-Meca and Jennifer Martinez-Ferrero

Sustainability development goals (SDGs) cannot be achieved without a concerted effort from businesses and other organisations, being the corporate level is one of the keys to the…

Abstract

Purpose

Sustainability development goals (SDGs) cannot be achieved without a concerted effort from businesses and other organisations, being the corporate level is one of the keys to the achievement of SDGs. This study aims to explore the relationship between firms' adoption of SDG reporting in China and two main corporate-level factors, namely, board characteristics and ownership factors. Also, this study aims to determine which set of drivers – those related to board or ownership factors – exerts a greater influence on this reporting.

Design/methodology/approach

This research examines the impact of ownership and board-level factors on the SDG reporting of Chinese firms in the period 2016–2018, with a final sample of 455 firm-year observations operating in 11 activity sectors.

Findings

The results support the following: firstly, that board independence and size and the existence of a corporate social responsibility (CSR) committee favours firms addressing SDGs in their sustainability reporting while greater levels of foreign or institutional ownership are negatively related to a company's adoption of SDG reporting; secondly, two-stage logit regression results revealed that board-level factors exert greater explanatory power in the prediction of this reporting and have bigger weights in affecting the SDGs reporting.

Practical implications

This study focuses on assessing the drivers of SDGs; namely, what internal factors will facilitate companies' better implementation of SDG reporting to bridge the gap in this field, not only extending the investigation of corporate governance factors affecting SDGs but also examining the impact of corporate ownership on SDG reporting.

Originality/value

This study enriches and provides support for previous studies examining the drivers of SDGs in the private sector. In academia, addressing SDGs in business is still an emerging research stream that is still in an embryonic state; the reporting of SDGs in business is quite under-investigated in the sustainability literature. Moreover, literature on the drivers that promote better implementation of SDGs in business is even more scarce and incomplete. Some previous studies have ignored the impact of board size and the CSR committee. At the same time, there is no research to date on the impact of ownership on companies' SDGs reporting, which has been proved to play a large role in firms sustainability reporting.

Details

Management Decision, vol. 61 no. 12
Type: Research Article
ISSN: 0025-1747

Keywords

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