Different Types Of Institutional Investors Research Articles

Institutional investor behaviour and the energy transition: A complexity framework for accelerating sustainable finance from UK investors

Despite sustainable investment flows having increased significantly over the past decade for transforming the current energy system, a large investment gap remains. This research explores the complex links between institutional investors' expectations on the speed of the energy transition and their sustainability-related investment behaviours. Through in-depth semi-structured interviews with institutional investors, we construct a complex system model using a causal mapping approach, illustrating complex relationships within the sustainable investment system. Our contribution involves the development of multi-layer cognitive maps for different types of institutional investors, followed by a composite causal map that dissects key investment behaviours and investor expectations. Results reveal interlinked concepts influencing investment behaviour and highlight feedback loops with potential amplifying effects on investor expectations and investment behaviour. Two critical feedback loops emerge: 1) the interplay between political and financial support for the energy transition and the associated cost, and 2) the intricate relationship between sustainability factors and asset valuation. Addressing these interconnected issues simultaneously and monitor negative feedback loops that may curtail sustainable finance flows are vital. The results reveal heterogeneities amongst institutional investors such as fiduciary duties, stranded assets, the importance of fossil fuels in the energy system. In sum, our insights provide a foundation for holistic energy policies and a reference system for evaluating policies aimed at accelerating green finance.

R&D investments in emerging market firms: the role of institutional investors and board interlocks

Despite the increase in institutional investor shareholdings in emerging market firms, their impact on R&D investments has received scant attention in the literature. By integrating agency and resource dependence perspectives, we examine the role of different types of institutional investors and their interactions with board interlocks in shaping their preference for R&D investment in their portfolio firms. We test our hypotheses on a sample of 2,478 Indian firm‐year observations from 2005 to 2019, using various estimation techniques. Our results indicate that different categories of institutional investors have distinct preferences for R&D investment. Specifically, we find that ownership by both foreign institutional investors and mutual fund investors negatively impacts R&D investments in firms. While board interlocks positively moderate the impact of institutional investors such as banks and financial institutions and foreign institutional investors on R&D investments in firms, this moderation is negative in the case of mutual fund investors and R&D investments in firms. We contribute to the understanding of the determinants of R&D investments in emerging market firms, with a specific focus on institutional investor ownership and add to the nascent literature on the interaction between two forms of governance, i.e., ownership and board characteristics, in shaping this firm strategy.

Institutional investors and mispricing of unionized firms

AbstractWe examine investment by different types of institutional investors in firms with strong labor unions. We find that hedge funds own a lower percentage of shares in these firms than in other firms. In contrast, passive institutional investors and institutional investors as a group own a higher percentage. Our tests suggest that the relation between unionization and hedge fund ownership is causal: When union power changes in a firm, hedge fund ownership changes in the opposite direction. Instead, passive investor holdings in unionized firms seem to be driven by other firm characteristics.

Institutional investors, heterogeneity, and capital structure decisions: Evidence from an emerging market

This paper uses data on Chinese A-share listed firms from 2008 to 2020 to examine the effect of institutional investors on capital structure by considering different types of institutional investors and firms. The results find that institutional investor shareholdings have a significant negative effect on capital structure. Further, compared with pressure-sensitive institutional investors, pressure-resistant institutional investors have a stronger negative effect on capital structure. And compared with non-state-owned firms, institutional investors have a stronger negative effect on the capital structure of state-owned firms. Institutional investors lower firm leverage by decreasing agency costs (governance channels) and reducing information asymmetry (information channels), and the effect of governance channels dominates. Finally, firms become more likely to reduce debt than issue equity to lower leverage in response to increased institutional investor shareholdings. These findings shed light on the role of institutional investors in capital structure decisions in emerging markets.

Corporate ESG Performance and Shareholding Preference of Institutional Investors

With the widespread recognition of ESG investment concept, institutional investors in China's securities market are paying more and more attention to ESG performance of enterprises. However, different types of institutional investors pay different attention to ESG performance, and their shareholding preferences may be different. This paper takes A-share listed companies from 2018 to 2021 as samples to conduct an empirical study. The results show that: on the whole, institutional investors have an obvious ESG preference in China's A-share market, and corporate ESG performance is significantly positively correlated with institutional shareholding ratio. The research on different types of institutional investors shows that independent institutional investors have more obvious ESG preference for shareholding compared with non-independent institutional investors.

The effects of institutional investors on firms' green innovation

AbstractStakeholder theory suggests that institutional investors, as firms' vital stakeholders, might play a crucial role in influencing firms' green innovation. Considering both the shareholding and portfolio characteristics of institutional investors, we investigate the effects of different types of institutional investors with various supervisory motivations and governance capabilities on firms' green innovation. Importantly, we also explore which types of institutional investors become the driving force behind firms' green innovation. Furthermore, we consider how various aspects of financial and social benefits as contingencies affect the relationship between different types of institutional investors and firms' green innovation. Based on 5473 observations of Chinese manufacturing firms from 2013 to 2019, we find that, when considering institutional investors' effects on firms' green innovation, it is better to simultaneously consider both the shareholding and portfolio characteristics of institutional investors than to consider only one or the other. Dedicated institutional investors with more shareholding independence and higher portfolio concentration are positively associated with green innovation and are the driving force behind it, while transient institutional investors are not. However, institutional investors' effects on green innovation will change because of contingencies related to firms' financial and social benefits, generally presenting the characteristics of “pursuing benefits and avoiding risks.” Specifically, dedicated institutional investors promote green innovation for firms with satisfactory financial and social benefits to pursue long‐term benefits but do not have significant effects on the green innovation of firms with general or unsatisfactory financial and social benefits. By contrast, transient institutional investors are inclined to hinder green innovation for firms with unsatisfactory financial and social benefits to avoid short‐term risks; at the same time, they have insignificant effects on the green innovation of firms with satisfactory or general financial and social benefits.

Ownership and corporate governance across institutional contexts

AbstractResearch Question/IssueThe purpose of this special issue (SI) is to encourage research examining the effect of different ownership types in and from different countries on corporate governance and objectives.Research Findings/InsightsThe articles included in this SI provide novel insights as to the influence of different types of owners, including states and sovereign wealth funds, families, and different types of institutional investors, as well as of other features of ownership structures, on various aspects of corporate governance, in a variety of institutional contexts.Theoretical/Academic ImplicationsAs companies face different institutional contexts when they operate internationally, and shareholders have become increasingly global, the resulting heterogeneity of shareholder types poses new challenges in our understanding of their behavior. This SI is a step in the direction of disentangling the complex implications of ownership for corporate governance across institutional contexts.Practitioner/Policy ImplicationsTogether with other owner types, the ever‐increasing $100 trillion global asset management industry representing 40% of global market capitalization (PwC, 2020) fuels corporate governance and performance pressures on portfolio companies. The articles included in the SI provide useful insights as to the new ownership landscape and its consequences for operating firms in different countries.

Monitoring or Colluding? Institutional Investors' Heterogeneity and Environmental Information Disclosure Behavior.

High-quality environmental information disclosure is not only an effective way for the firm to fulfill its environmental responsibility and promote green development, but also an important governance mechanism to reduce the degree of information asymmetry between the firm's management and shareholders and alleviate the agency conflict. As an important shareholder of a firm, there are two different hypotheses about the influence of institutional investors on firm decision-making and behavior: monitor and collusion. Institutional investors are not homogeneous, and there are significant differences in the impact of different types of institutional investors on firm decision-making and behavior. We divide institutional investors into the stable institutional investors and the unstable institutional investors, using the data of listed firms in China's A-share heavy pollution industry between 2008 and 2020, and this study explores the effect of institutional investors' heterogeneity on environmental information disclosure behavior from the perspective of environmental information disclosure quality. Empirical evidence shows that institutional investors as a whole have a positively significant impact on environmental information disclosure quality. Further analysis shows that the stable institutional investors have positive impact on environmental information disclosure quality compared with the unstable institutional investors. After a series of robustness tests, the conclusion is still valid. The results of this paper show that institutional investors, especially the stable institutional investors, can effectively reduce the degree of information asymmetry, alleviate the agency conflict of the firm, play an active role in corporate governance, strengthen the main responsibility of firm ecological environment protection, and promote the green development of firm. The conclusion of this paper has important reference significance for the regulators to formulate policies to improve environmental information disclosure quality and promote green development according to the heterogeneity of institutional investors.

Institutional Investors in China: Corporate Governance and Policy Channeling in the Market Within the State

The extraordinary rise of China’s economy has made understanding Chinese corporate governance an issue of global importance. A rich literature has developed analyzing the Chinese Communist Party’s (CCP) role as China’s largest controlling shareholder and the impact that this has on Chinese corporate governance. However, the CCP’s role as the architect—and direct and indirect controller—of institutional investors in China has been largely overlooked in the legal literature. This Article aims to take the first step in filling this gap in the literature by drawing on Chinese sources and fresh hand-collected empirical, interview, and case study evidence to analyze the meteoric rise of institutional investors in China. It provides a taxonomy of institutional investors in China and reveals how the market for institutional investors has grown and has become increasingly “atomized” as different types of institutional investors have proliferated. The Article reveals how the CCP has actively and gradually promoted the growth of domestic institutional investors, in terms of types and size, through the relaxation of policies and law reforms to improve corporate governance and stabilize the stock market, while limiting the influence of foreign institutional investors. It further analyzes all the Activist Campaigns undertaken by institutional investors in China and maps the network of government bodies, regulations, and tactics that the CCP has developed to directly and indirectly control State-Owned Institutional Investors (SOIIs) and Private-Owned Institutional Investors (POIIs) for the purpose of policy channeling. This Article concludes by taking a step back and briefly considering what this examination of institutional investors tells us about China’s unique form of capitalism and system of corporate governance. It suggests that the rise of institutional investors in China has been strategically developed in a way to reinforce the CCP’s ultimate control over the financial system. However, contrary to what some conceptions of “state capitalism” may suggest, the CCP does not micro-manage institutional investors on a day-to-day basis. Rather, institutional investors normally function according to free-market forces and increasingly perform an important corporate governance role—with the CCP using its policy channeling in a targeted way to stabilize the market in times of crisis, execute important legal and market reforms, and to maintain calm in society during critical political events: what this Article termed as the “market within the state” for institutional investors in China.

The Role of Institutional Investors in Corporate Governance of Their Portfolio Companies – The Case of Croatia

The goal of this research is to examine the involvement of institutional investors in the corporate governance of companies in their portfolio by analyzing characteristics of institutional investors with respect to the type of investment, investment time horizon, and degree of involvement in the process of managing a company. The paper will outline the attitudes of managers on the level of investors’ involvement in the governance process in order to identify determinants of investment decisions, decisions to take corrective actions to enhance corporate governance, or decisions to leave the ownership structure. A qualitative approach was chosen, consisting of a series of structural interviews with 25 fund managers of different types of institutional investors. The results indicate that institutional investors are involved in the corporate governance of their portfolio companies, and that control mechanisms they use include voting rights, direct communication with the management with the aim of discussing strategies for future development, and collaboration with other institutional investors in the ownership structure.

Does the research meeting affect the shareholding ratio of institutional investors in listed companies? Empirical evidence from China

PurposeThis paper discusses whether institutional investors change the shareholding ratio of listed companies through research meeting, and whether this active investment mode can really improve the investment efficiency of institutional investors.Design/methodology/approachUsing empirical research method, this study designs and conducts an empirical research according to empirical research's basic norms. Thus, we acquire needed and credible empirical data. This study analyzes whether institutional investors seek their private interest in researched companies by analyzing their research meetings and the shareholding ratios of different types of institutional investors using Shenzhen Stock Exchange data on listed firms from 2014 to 2018.FindingsThis study finds that the research meetings of institutional investors provide participants with reliable information which supports the decision of institutional investors to change their shareholding ratio. The stock price growth rate strengthens the positive correlation between the research meetings of institutional investors and the shareholding ratio of institutional investors. Additionally, transactional institutional investors increase the shareholding ratio, while holding institutional investors do not.Originality/valueThis paper combines the behavior of institutional investors with the holding status of institutional investors, and discusses the impact of institutional investors' behavior on investment decisions. At the same time, it classifies the institutional investors and discusses the attitude of different types of institutional investors towards this active investment mode.

Institutional Investors and Mispricing of Unionized Firms

To gain better understanding about the impact of different types of institutional investors on the informational efficiency of stock markets, we examine investment in one group of underperforming firms: firms with strong labor unions. While publicly available, information about unionization is hard to obtain and understand. We find that hedge funds avoid investing in firms with strong unions, but passive investors invest more in these firms. When unionization becomes stronger (weaker), investment by hedge funds declines (increases). When firms are excluded from the S&P 500 index, reducing passive-investor interest, stock-price declines are larger for firms with strong unions.

Institutional Investors in China: Corporate Governance and Policy Channeling in the Market Within the State

The extraordinary rise of China’s economy has made understanding Chinese corporate governance an issue of global importance. A rich literature has developed analyzing the Chinese Communist Party’s (CCP’s) role as China’s largest controlling shareholder and the impact that this has on Chinese corporate governance. However, the CCP’s role as the architect – and direct and indirect controller – of institutional investors in China has been largely overlooked in the comparative corporate law literature. This Article aims to take the first step in filling this gap in the literature by drawing on Chinese sources and fresh hand-collected empirical, interview, and case study evidence to analyze the meteoric rise of institutional investors in China. It provides a taxonomy of institutional investors in China and reveals how as the market for institutional investors has grown it has become increasingly “atomized” as different types of institutional investors have proliferated. The Article reveals how the CCP has actively and gradually promoted the growth of domestic institutional investors, in terms of types and size, through relaxation of policies and law reforms to improve corporate governance and stabilize the stock market, while limiting the influence of foreign institutional investors. It further analyzes all the Activist Campaigns undertaken by institutional investors in China and maps the network of government bodies, regulations, and tactics that the CCP has developed to directly and indirectly control State-Owned Institutional Investors (SOIIs) and Private-Owned Institutional Investors (POIIs) for the purpose of policy channeling. This Article concludes by taking a step back and briefly considering what this examination of institutional investors tells us about China’s unique form of capitalism and system of corporate governance. It suggests that the rise of institutional investors in China has been strategically developed in a way to reinforce the CCP’s ultimate control over the financial system. However, contrary to what some conceptions of “state capitalism” may suggest, the CCP does not micro-manage institutional investors on a day-to-day basis. Rather, institutional investors normally function according to free-market forces and increasingly perform an important corporate governance role – with the CCP using its policy channeling in a targeted way to stabilize the market in times of crisis, execute important legal and market reforms, and to maintain calm in society during critical political events: what this Article coin’s the “market within the state” for institutional investors in China.

Does institutional ownership and internationalization affect corporate social responsibility in emerging economy firms? An empirical evidence from India

PurposeThe preference of firm corporate social responsibility (CSR) spending is shaped by different groups of owners and the institutional environment in which the firm operates. This paper aims to study the heterogeneity among the controlling groups and firms’ internationalization in influencing the CSR decision in emerging economy firms.Design Methodology ApproachThis paper draws understanding from institutional theory to inspect the propensities of various ownership groups such as lending institutions (LI), domestic mutual funds (MF) and foreign institutional investors (FIIs). The empirical analysis was conducted from a sample of 1,594 unique Bombay stock exchange (BSE)-listed non-financial Indian firms during the 2014–2019 period using Tobit panel regression analysis.FindingsThe findings reveal that firms’ CSR activities are impacted differently by ownership share of different types of institutional investors after controlling for firm-level resources and capabilities. Lending institutions, FIIs and MF are supportive of CSR investments by firms along with international investments by the firm. Further, the results show that the CSR spend is positively influenced by the business group affiliation of the firm compared to the unaffiliated group of firms.Practical ImplicationsThe analysis has implications for both institutional investors and multinational firms. In the merging market context, managers and owners who target long term strategies such as CSR will benefit from increasing shareholdings of creditors (lending institutions). They can also take steps to improve their transparency and corporate governance structure so as to attract foreign institutional investments, thus, in turn, helping the internationalization process of the firm.Originality ValueThis paper considers the role of the diverseness of the ownership institutional investors along with the moderating effect of business group affiliation of the firm and international investments in impacting the CSR spend. This disparity has not been previously studied with the latest data in an emerging economy context.

Compensation-related institutional investor activism – a literature review and integrated analysis of sustainability aspects

PurposeThis paper aims to analyse whether and how different types of institutional investors influence shareholder proposal initiations, say-on-pay (SOP) votes and management compensation from a sustainability perspective.Design/methodology/approachBased on the principal-agent theory, the authors conduct a structured literature review and evaluate 40 empirical-quantitative studies on that topic.FindingsThe traditional assumption of homogeneity within institutional investors, which is in line with the principal–agent theory, has to be questioned. Only special types of investors (e.g. with long-term and non-financial orientations and active institutions) run an intensive monitoring strategy, and thus initiate shareholder proposals, discipline managers by higher SOP dissents and prevent excessive management compensation.Research limitations/implicationsA detailed analysis of institutional investor types is needed in future empirical analyses. In view of the current debate on climate change policy, future research could analyse in more detail the impact of institutional investor types on proxy voting, SOP and (sustainable) management compensation.Practical implicationsWith regard to the increased shareholder activism and regulations on SOP and management compensation since the 2007/2008 financial crisis, firms should be aware of the monitoring role of institutional investors and should analyse their specific ownership nature (time- and content-driven and as well as range of activity).Originality/valueTo the best of authors’ knowledge, this is the first literature review with a clear focus on institutional investor range and nature, shareholder proposal initiation, SOP and management compensation (reporting) from a sustainability viewpoint. The authors explain the main variables that have been included in research, stress the limitations of this work and offer useful recommendations for future research studies.

Does institutional ownership affect firms' international investments? empirical evidence from India

PurposeThe preference of firm internationalization is shaped by different groups of owners and the institutional environment in which the firm operates. Past studies have largely ignored the heterogeneity among the controlling groups in influencing the internationalization decision in emerging economy firms.Design/methodology/approachIn this study, the authors draw understanding from behavioral risk perspective and institutional theory to inspect the risk perceptions and propensities of various ownership groups such as lending institutions, domestic mutual funds and foreign institutional investors (FIIs). Empirical analysis was conducted from a sample of 2695 unique BSE-listed nonfinancial Indian firms during 2005−2019 period using Tobit panel regression analysis.FindingsThe findings reveal that firms' international investments are impacted differently by ownership share of different types of institutional investors after controlling for firm-level resources and capabilities. While lending institutions and FIIs are supportive of foreign investments by firms, domestic mutual funds are not supportive of this strategic decision on foreign investment.Research limitations/implicationsFurther, our results show that family ownership, measured in terms of family shareholding, negatively moderates the lending institutions toward internationalization and does not impact the FIIs and mutual fund investor's decision regarding the foreign investments.Originality/valueTo the best of the author's knowledge, the current paper is the first to address the risk perceptions of various ownership groups on firm's international outlook in an emerging economy context with the latest data. This practical perspective helps the organizations in managing the ownership holdings.

The Impact of Institutional Investors’ Holdings on Performance Sensitivity to Management Compensation in China

In recent years, institutional investors have developed rapidly, and have gradually developed into a trend of growing multi-type institutional investors. Management compensation system, as an important part of corporate governance, is a system that institutional investors often pay attention to. And the performance sensitivity to management compensation can precisely measure the improvement of corporate governance of corporate investors, showing the convergence of management and shareholders’ goals. Therefore, it is meaningful to discuss the relation between institutional investor's shareholding and company management compensationperformance sensitivity. This paper combines normative research and empirical research, combs and summarizes domestic and foreign literature, and puts forward some research hypotheses. In terms of empirical research, this paper selects Chinese listed companies as research samples to study the influence of overall institutional investors and different types of institutional investors on the performance sensitivity to listed companies' management compensation. There is a positive correlation between the overall institutional investor's shareholding and performance sensitivity to management compensation. Compared with trading institutional investors, stable institutional investors are more able to increase the performance sensitivity to management compensation in Chinese listed companies.

Heterogeneous institutional preferences and informativeness: Evidence from China

Using complete semi-annual stock holdings of seven different types of institutional investors including public mutual funds, insurance companies, social security funds, qualified foreign institutional investors (QFIIs), asset management portfolio of securities companies, proprietary trading portfolio of securities companies, and trust funds, we investigate those heterogeneous institutional investors' preferences and informativeness in the China's A-shares market from 2005 to 2017. We find that although those institutional investors in aggregate prefer to hold stocks with a lower market risk, a larger size, a higher share price, a lower turnover ratio, a higher return on equity ratio, a higher leverage ratio, a higher floating percentage, better past year performance, and lower controlling shareholder's ownership, insurance companies tend to hold past loser stocks. In addition, our results indicate that only qualified foreign institutional investors are informed among those seven types of institutional investors. While our findings show that holding changes of public mutual funds and social security funds exhibit short-term return predictability, there is a price reversal effect for their holdings after one year. Furthermore, qualified foreign institutional investors exhibit a better trading skill while insurance companies demonstrate a worse trading skill. Finally, our results show that institutional investors are generally market stabilizers in the China's A-shares market.

Shareholder Stewardship in India: The Desiderata

The goal of this paper is to examine whether the stewardship code, which emanated in circumstances that are specific to the United Kingdom (UK), is capable of transposition to other jurisdictions that experience different corporate structures as well as legal and institutional mechanisms. It does so in the context of India, which has introduced a series of stewardship codes for different types of institutional investors. This paper cautions against the wholesale adoption of a UK-style stewardship code in India due to the specific factors that are at play in that jurisdiction, and instead calls for a sui generis approach to stewardship. At least three reasons necessitate such a departure from the UK stewardship approach. First, while the prominence of institutional investors in the UK in the context of companies with dispersed ownership inspired the UK-style stewardship code, the roles and challenges that institutional investors experience in India in the context of concentrated shareholding are considerably different. Second, the goals of stewardship vary from the UK, where the focus is on the long-term financial sustainability of beneficiaries of institutional investors, to India, which follows a pluralistic stakeholder approach to corporate law. Third, the traditional mode in the UK of using a code-based soft law approach to implementation of stewardship is unsuitable to the Indian circumstances that steadfastly rely on mandatory rules in the form of hard law in the corporate arena.

PORTFOLIO FIRM RESPONSES TO INSTITUTIONAL INVESTOR ACTIVISTS AND THEIR TACTICS

ABSTRACT Purpose Institutional Investor Activism (IIA) has become a dynamic institutional force and a valuable tool for institutional investors in their attempt to influence their portfolio firms. Correspondingly, there has been a rapidly increasing body of scholarly literature devoted to understanding this phenomenon as it affects numerous disciplines within the organization science academy. Prior research in IIA has considered a number of antecedents and processes that may influence corporate outcomes (Goranova & Ryan, 2014b), yet results have been equivocal thus leaving unanswered questions critical for the scholarly discourse on IIA. An overlooked aspect of this literature is the heterogeneity that exists among institutional investor activists and the impact these differences can have on portfolio firm responses. This study examines the heterogeneity of private pension fund and mutual fund activists and answers the following research questions: 1: How do the characteristics of institutional investor activists ultimately influence the likelihood that a firm will comply with an investor's requests/demands?; 2: How is the relationship between institutional investor activists and firm responses moderated by activism tactics? Method To test the hypotheses, we built a database of activism events by institutional investors (II). For comparison purposes, we limited the database to activism events that occurred within the United States. The database included completed activism events from 2010-2017 with completed activism events defined as II demands that resolved (either positively or negatively) within four years. The sample used all activism events for private pension funds and mutual funds. The sample ended up being 238 IIA events spread across the two different types of IIs with the unit of analysis being the II-portfolio firm dyad. The sample included 122 non-proxy-based tactics and 146 proxy-based tactics used within the 238 activism events. Data and databases came from Activist Insight, Thomson Reuters, S&P Capital IQ, the Investor Responsibility Research Center (IRRC), Institutional Shareholder Services (ISS), and Lexis-Nexis. Portfolio firm-level data came from Standard & Poor's Compustat annual dataset. Drawing on 238 observations activism events in the United States, we undertake an empirical test of the effects of private pension fund and mutual fund activism on portfolio firm responses using ordered logistic regression. Results Overall, the tests of the models showed mixed support for the hypotheses. Private pension plans were found to be less likely to receive favorable responses from their portfolio firms whereas mutual funds are not less likely to receive favorable responses from their portfolio firms. In addition, the moderating effects of proxy-based tactics on both types of institutional investors were not supported which runs contrary to prior research. Future research should continue to explore the differences among institutional investors as we have limited understanding of their effects to date. Conclusion These results, and the use of ordered logistic regression with interaction terms, highlight both the success in understanding variance among institutional investors and the continued need for further research on shareholder activism. Keywords Shareholder Activism, Mutual Fund Activism, Stakeholder Salience Theory, Activism Tactics, Strategic Management