Institutional Holding in Belgian Small Caps: Influence on Performance

Abstract

Despite the lack of share liquidity which characterises small caps, our study shows the presence of institutional investors in 70 % of small caps on the basis of a sample of Belgian companies. Furthermore, they have a high average percentage of ownership (17 %). Moreover, this study highlights a negative and significant relationship between institutional ownership and the distribution of dividends. Institutional investors should consider small caps’ potential for growth. Insofar as institutional investors often have large blocks of shares, they are able to exercise some control and influence on companies’ decisions. Exercising this control, we talk about ‘institutional activism’ as a phenomenon that seems to be widespread because institutional investors exercise more and more of their voting rights within companies in which they are involved (Mallin 2012). The relationship between activism and businesses’ performance is therefore an important question. The literature traditionally identifies two types of institutional investors. The long term ones try to maximize the company’s long term value, whereas the aim of the short term investors is to maximize share value of the company in the short term. If there is any disagreement with the management team, the short term investors use sanctions imposed by the market to reach their objective of maximisation. In other words, they sell their shares which sends to the market a negative signal, leading to a drop in share value (Bughin et al. 2011; Sahut andOthmaniGharbi 2011a). Nevertheless, as this exit strategy can be expensive and because of the high proportion of capital owned by each institutional investor, they would likely want more involvement in the companies at different levels such as corporate governance, strategy and control. There are three main theories about the influence of institutional investors on the companies’ performance in which they are involved. The first one has a positive effect. Thanks to an ability to access and process information, institutional investors reduce conflicts of interest between managers and shareholders, which improves the creation Int Adv Econ Res (2015) 21:133–134 DOI 10.1007/s11294-014-9497-5