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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).

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.

Purpose – Run a comparative analysis between investments of sovereign wealth funds (SWFs) and mutual funds, focusing on firm-level, country-level, and institutional variables.

Methodology/approach – We use a hand-collected sample of 1,845 acquisitions around the world over the last 25 years (251 for SWFs and 1,594 for mutual funds). We then run univariate parametric and nonparametric tests to assess the differences in the investments of both subsamples.

Findings – We review the literature on the determinants of SWFs' investment decisions. Our analysis adds to the scarce available literature on the investment decisions of SWFs and their comparison with other institutional investors. Our results show that, compared to mutual funds, SWFs indeed exhibit different preferences: for instance, SWFs prefer to acquire stakes in larger, less liquid companies which are financially distressed but which also have a higher level of growth opportunities. They also prefer less innovative firms with more concentrated ownership, which are located in less developed but geographically closer countries with whom they do not necessarily share cultural and religious backgrounds.

Social implications – Our results are important for practitioners and firms seeking to attract a given type of institutional investment. They also add insights to the debate on the “hidden” political objectives behind SWF investments in the Western world.

Originality/value of paper – This is the first attempt to empirically assess the differences in the investment choices of SWFs and mutual funds.

We examine the market valuation of targets with multiple large shareholders (MLS) and single large shareholder (SLS) structures, in an international sample of M&A announcement in 19 countries outside North America. We find that the presence and power of MLS in these firms are negatively associated with abnormal returns and first-bid-to-merger-completion returns, suggesting that MLS mitigate agency problems in the target, and hence their acquisition is perceived as “a loss of good governance.” The negative association between MLS targets and returns is stronger in widely held firms suggesting that MLS indeed curb expropriation of minority shareholders. By contrast, when the second largest shareholder in the MLS structure of the target is a family, we find positive cumulative abnormal returns at the merger announcement, suggesting exacerbated agency problems in these firms that should benefit from the “acquisition of good governance.” Our evidence is robust to a battery of tests and to addressing potential endogeneity.

This chapter investigates the role of macro corporate governance (legal and extra legal institutions) in determining the extent of ultimate excess control (i.e., the ownership-controls rights divergence of the ultimate owner) using a large sample of Asian and European companies. We find that the level of excess control is lower in countries with (1) good investor protection and better enforcement of information disclosure and (2) fairer competition laws, higher newspaper diffusion, and more regulated insider trading. Controlling for institutions subsumes the effect of firm-level determinants, as only leverage appears to be negatively and significantly related to excess control.