Institutional investor networks and firm value

Abstract

This paper investigates the effect of active institutional investor networks on firm value. Using data on US institutional investors, we document that block-holdings from more central, active institutional investors enhance firm value more than those held by other investors. Our findings are consistent with the view that central institutional investors provide a certification benefit to the firm. On the contrary, we do not find evidence that the increase in value is due to monitoring, advisory, information cost, financing, or innovation effects. The documented effects are robust to alternative specifications of network centrality and to endogeneity concerns.