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Article
Publication date: 1 March 2006

Farshid Navissi and Vic Naiker

Prior studies examining the relation between the shareholdings by institutional investors and firm value have produced mixed results. These studies have assumed that a linear…

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Abstract

Purpose

Prior studies examining the relation between the shareholdings by institutional investors and firm value have produced mixed results. These studies have assumed that a linear relation exists between corporate value and institutional shareholdings. The purpose of this study is to further investigate the nature of this relationship and by partitioning institutional investors into institutions that have appointed a representative to the board of directors of the firms in which they have a block investment and institutions with a similar holding but without a representative on the board of directors.

Design/methodology/approach

The study is based on a sample of 123 firms with available financial and institutional ownership data. A cross‐sectional regression analysis is used to test the relation between corporate value and institutional ownership with and without board representation.

Findings

The results of the study suggest that share ownership by investors with board representation is positively related to the value of the firm at lower levels of ownership. However, as the share ownership increases, the impact on the value of the firm becomes negative, giving rise to a non‐linear relation. The extent of shareholding by institutions without board representation, on the other hand, is not related to the value of the firm.

Research limitations/implications

The findings show that institutions with board representation have greater incentives to monitor management, and therefore their presence should have a positive influence on firm value. However, at high levels of ownership, institutional investors with board representation may induce boards of directors to make sub‐optimal decisions.

Originality/value

The study provides a deeper understanding of the relationship between firm value and institutional ownership. That is, the effect of shareholding by institutions with board representation is likely to have a non‐linear relation with firm value.

Details

Managerial Finance, vol. 32 no. 3
Type: Research Article
ISSN: 0307-4358

Keywords

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 more…

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

Book part
Publication date: 19 September 2014

Abdullah A. Alshwer and Edward Levitas

This study empirically examines the relationship between institutional ownership and innovation activity in the unique setting of the clinical trials for US biopharmaceutical…

Abstract

This study empirically examines the relationship between institutional ownership and innovation activity in the unique setting of the clinical trials for US biopharmaceutical companies. We used multiple statistical techniques in the period from 1990 through 2006 for firms in the biopharmaceutical industry to examine this relationship. Contrary to the widely believed relationship discussed in the literature, our findings suggest that institutional investors vary in their reactions to innovative progress. Specifically, we find that institutional investors with a long-term investment horizon (i.e., dedicated owners) increase their holdings of a firm’s equity as the number of the firm’s products increases in phases I and II of FDA clinical trials. These findings are robust for heteroskedasticity and autocorrelation as well as for different operationalizations of the change of institutional ownership.

Details

Finance and Strategy
Type: Book
ISBN: 978-1-78350-493-0

Keywords

Book part
Publication date: 21 October 2013

Nathalie Del Vecchio and Carine Girard

Purpose – This chapter presents the results of an exploratory study carried out on activist institutional investor strategies. It aims to identify the way in…

Abstract

Purpose – This chapter presents the results of an exploratory study carried out on activist institutional investor strategies. It aims to identify the way in which different types of institutional investors are reacting to new institutional pressures in the French context.

Design/methodology/approach – Our methodology is based on a series of semi-directive interviews, combined with additional relevant data.

Findings – The interpretation of results makes use of institutional theory, more specifically the work of Oliver (1991). Our study shows that active institutional investors may opt for different responses when confronted with new institutional pressures, and that these responses would seem to depend on antecedents underlined by Ryan and Schneider (2002), which in turn depend on the nature of their business relationships with the firm in which they invest. Whereas pressure-sensitive investors (such as banks and insurance companies) generally adopt acquiescence responses, pressure-resistant investors (such as pension funds and investment funds) pursue joint strategies of co-optation, influence or control with key actors such as local and international proxy advisors and French investor associations. Acting conjointly, certain pressure-resistant investors are often considered as institutional entrepreneurs in that they initiate changes and actively participate in the implementation of new norms in the field of shareholder activism in the French context. In parallel to this ongoing professionalization, other pressure-resistant investors such as activist hedge funds seem to lack sufficient legitimate power to be effective.

Originality/value – This chapter illustrates that the level of institutional investor activism depends largely on the relevant national legal framework. It also shows how institutional investor coalitions take advantage of new institutional pressures to enhance their legitimacy or increase the effectiveness of their action.

Details

Institutional Investors’ Power to Change Corporate Behavior: International Perspectives
Type: Book
ISBN: 978-1-78190-771-9

Keywords

Book part
Publication date: 30 March 2017

Marc Steffen Rapp and Oliver Trinchera

In this paper, we explore an extensive panel data set covering more than 4,000 listed firms in 16 European countries to study the effects of shareholder protection on ownership…

Abstract

In this paper, we explore an extensive panel data set covering more than 4,000 listed firms in 16 European countries to study the effects of shareholder protection on ownership structure and firm performance. We document a negative firm-level correlation between shareholder protection and ownership concentration. Differentiating between shareholder types, we find that this pattern is mainly driven by strategic investors. In contrast, we find a positive correlation between shareholder protection and block ownership of institutional investors, in particular when we restrict the analysis to independent institutional investors. Finally, we find that independent institutional investors are positively associated with firm valuation as measured by Tobin’s Q. The opposite applies for strategic investors. Overall, our results are consistent with the view that (i) high shareholder protection and (ii) limited ownership by strategic investors make small investors and investors interested in security returns more confident in their investments.

Details

Global Corporate Governance
Type: Book
ISBN: 978-1-78635-165-4

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: 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: 16 June 2023

Aditya Pandu Wicaksono, Hadri Kusuma, Fitra Roman Cahaya, Anis Al Rosjidi, Arief Rahman and Isti Rahayu

This study aims to investigate the effect of the classification of origin country of institutional shareholder (domestic, developed and developing country) and its status on stock…

Abstract

Purpose

This study aims to investigate the effect of the classification of origin country of institutional shareholder (domestic, developed and developing country) and its status on stock exchange (listed and unlisted) on environmental disclosure level in Indonesian companies.

Design/methodology/approach

The data set comprises 474 non-financial firms listed in Indonesian Stock Exchange (IDX) for the period of 2017 to 2019. The study uses an environmental disclosure checklist to measure the extent of environmental disclosure in companies’ reports. Panel regression analysis technique is adopted to investigate the association between total percentage of shares held by institutional shareholders based on the classification of origin country and the status in stock exchange, and the extent of environmental disclosure.

Findings

The study reveals that the extent of environmental disclosure is positively and significantly associated with institutional investors from domestic, developed countries, listed and unlisted institutional investors. Further analysis shows interesting results that institutions from developing countries have a negative and significant relationship with environmental disclosure in non-sensitive industries.

Research limitations/implications

The authors recognize the issue of authors’ subjectivity in the measurement process of environmental disclosure. The sample for this study encompasses Indonesian listed firms. Thus, the results may not be generalized to Indonesian unlisted firms and other countries or regions.

Practical implications

This study suggests managers to engage more with institutional shareholders because they have greater concern for environmental disclosure practices. The current study also suggests managers to make strong environmental policies as they are important to ensure that institutional shareholders’ investments are safe.

Social implications

Given the positive impact institutional shareholders have on the level of environmental disclosure, it indirectly indicates that institutional shareholders have a strong motivation to make the world a better place.

Originality/value

This study offers in-depth insights into the effect of institutional ownership on environmental disclosure based on the classification of origin country and listing status of institutional investors.

Details

Corporate Governance: The International Journal of Business in Society, vol. 24 no. 1
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 26 December 2022

Runmei Luo and Yong Ye

In this study, the authors argue that the private information obtained and transmitted by institutions during the corporate visits can alleviate the degree of information…

Abstract

Purpose

In this study, the authors argue that the private information obtained and transmitted by institutions during the corporate visits can alleviate the degree of information asymmetry between firms and investors, so institutional visits may influence investors' heterogeneous beliefs. Therefore, the authors investigated whether and how institutional investors' corporate visits affect investors' heterogeneous beliefs.

Design/methodology/approach

This study examines whether and how institutional investors' corporate visits affect investors' heterogeneous beliefs using the data of A-share companies from the Shenzhen Stock Exchange (SZSE) during 2013–2019. Using empirical research method, this study designs and conducts an empirical research according to empirical research's basic norms.

Findings

The authors find that institutional visits effectively decrease investors' heterogeneous beliefs, especially institutional investors. Meanwhile, institutional site visits and sell-side institutional visits have a more significant negative effect on investors' heterogeneous beliefs. The findings remain after robustness tests with the alternative variable, instrumental variable, propensity score matching and quantile regression methods.

Originality/value

The development of China's capital market is imperfect, resulting in a strong speculative atmosphere. So, investors' irrational investment behaviors occur from time to time, leading to sizeable heterogeneous beliefs in China's capital market, which increases the risk of investment and is not conducive to the discovery of corporate value and the efficient allocation of resources. Therefore, exploring the factors influencing heterogeneous beliefs and finding ways to alleviate heterogeneous beliefs can reduce the proportion of speculative investors and promote the healthy development of China's capital market.

Details

China Finance Review International, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2044-1398

Keywords

Article
Publication date: 21 June 2022

Yu Jiang, Adrian C.H. Lei, Tao Wang and Chuntao Li

This paper aims to provide new evidence that corporate site visits give institutional investors better opportunities to obtain information and exert monitoring powers, which…

Abstract

Purpose

This paper aims to provide new evidence that corporate site visits give institutional investors better opportunities to obtain information and exert monitoring powers, which reduce listed firms’ earnings management.

Design/methodology/approach

This paper explores how private communications affect firms’ earnings management by using a sample of institutional investors’ visits to the corporate sites of Chinese listed firms between 2010 and 2018. This study uses the performance-matched Jones model (Kothari et al., 2005) to measure accrual-based earnings management and Roychowdhury’s (2006) method to measure real earnings management. The authors also perform several robustness checks including an alternative measure of accounting accruals, a two-stage instrumental regression and the Heckman two-step approach.

Findings

Using a sample of institutional investors’ site visits to Chinese listed firms during the 2010–2018 period, this study finds that institutional investors’ site visits reduce listed firms’ earnings manipulation activities (both accrual-based and real). This association is robust to several checks, including an alternative measure of accounting accruals, a two-stage instrumental regression and the Heckman two-step approach. This study further documents that other private communication approaches such as private in-house meetings and conference calls moderate the effect of site visits.

Practical implications

As the Shenzhen Stock Exchange is one of the few stock markets to mandate that listed firms record and disclose their private communication information, this study also has implications for researchers and policymakers who work in other stock markets.

Originality/value

To the best of the authors’ knowledge, this study is the first comprehensive study of the impact of private communications on earnings management. This study extends the earnings management literature by examining institutional investors’ information acquisition process and revealing a negative association between their site visits and listed firms’ earnings management. Moreover, this study examines the effects not only on traditional accounting accruals but also on real earnings management. In addition to studies that emphasize the effect of corporate site visits on individuals and market reactions, this study examines the effect of site visits on firms’ financial misbehavior. This study shows that institutional investors’ corporate site visits provide external monitoring that mitigates listed firms’ earnings management behavior.

Details

Review of Accounting and Finance, vol. 21 no. 4
Type: Research Article
ISSN: 1475-7702

Keywords

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