Does Institutional Ownership Enhance a Firm’s Financial Performance? A Study From Emerging Economies

Abstract

Corporate value is weakened by agency concerns and conflicts of interest between fund contributors and firm decision-makers. The global expansion of institutional investment emphasized the role of corporate governance in saving agency costs. Nonetheless, there is limited research on pressure resistance (PR), pressure sensitivity (PS), and stability of pressure-resistant (SPR) from an institutional ownership perspective on firm financial performance in emerging economics. This study aims to investigate the relationship between institutional ownership dimensions with firm financial performance. The study is quantitative and based on panel data (2018 to 2020) collected through content analysis from annual reports and company websites. The existing index was adapted for institutional ownership dimensions, and Tobin’s Q ratio was calculated for firm performance because it considers the market and book value of firm financial information. A purposive sampling technique was employed to examine the top 50 Malaysian public listed companies based on market capitalization. The findings revealed that PR and SPR positively impacted firm financial performance whereas PS indicated no relationship. Ultimately, the industry should proactively emphasize the structure of institutional ownership due to its potential in firm financial progression.