Abstract
This paper reviews the relevant literature on institutional investment and firm performance in India. The first part of the paper discusses the development of institutional investments in general. The discussions are segmented into ownership and firm performance; role of large shareholders and institutional as large shareholders in influencing corporate governance, reducing agency costs and affecting firm performance. It then discusses the monitoring role of institutional investors and cost and benefits of monitoring. Finally we describe institutional investment in India and segments into different groups of institutions and summarizes the extant studies in each categories i.e. mutual funds, banks and FIs, and foreign financial institutions. Studies have reported divergent results in the developed economies. Although the history of institutional investment in India is short, and the number of research in the Indian context is limited and they report evidence of monitoring. While the influence by mutual funds and banks is not clear, recent studies have argued that FII shareholding has a positive influence on firm performance.
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