Domestic Institutional Investors Research Articles

The impact of foreign institutional investors on the information content of Chinese stock prices

This paper examines the impact of foreign institutional investors on the information content of stock prices in China's capital market. Using A-share listed companies in Shanghai and Shenzhen from 2005 to 2021 as the research sample, the study finds that institutional investors play a “leading role” in increasing the information content of the market in both the short and long term. Furthermore, the information content of domestic and foreign institutional investors is complementary, with foreign institutional investors more effective in promoting the increase of information content in the Chinese stock market than their domestic counterparts. These findings provide new empirical evidence on how to enhance the effectiveness of China's stock market by further opening to foreign institutional investors and increasing the price information content.

Unraveling stock exchange connections: an empirical study of India, US, Hong Kong, Germany, France and Amsterdam

PurposeThe current study immerses itself in the realm of diversification prospects within a select group of preeminent global stock exchanges. Specifically, the study casts its discerning gaze upon the financial hubs of the United States, Hong Kong, Germany, France, Amsterdam and India. In this expansive vista of international financial markets, the present analytical study aims to unravel the multifaceted opportunities that lie therein for astute portfolio management and strategic investment decisions.Design/methodology/approachThe study encompasses daily time series data spanning from 2019 to 2022. To assess the interconnectedness among these stock indices, advanced statistical techniques, including Johansen cointegration methods and vector autoregressive (VAR) models, have been applied.FindingsThe research outcomes reveal both unidirectional and bidirectional relationships between the Indian, Hong Kong and US stock exchanges, encompassing both short-term and long-term time frames. Interestingly, the empirical findings indicate the presence of diversification opportunities between the Indian stock exchange and the stock exchanges of Germany, France and Amsterdam.Research limitations/implicationsThese insights hold significant value for both Indian and international investors, including foreign institutional investors (FIIs), domestic institutional investors (DIIs) and retail investors, as they can utilize this knowledge to construct more effective and diversified investment portfolios by understanding the intricate interconnections between these prominent global stock exchanges.Originality/valueThis research undertaking aspires to bring coherence to a landscape rife with divergent interpretations and methodological divergences. We are poised to offer a comprehensive analysis, a beacon of clarity amidst the murkiness, to shed light on the intricate web of interconnections that underpin the world's stock exchanges. In so doing, we seek to contribute a seminal piece of scholarship that transcends the existing ambiguities and thus empowers the field with a deeper understanding of the multifaceted dynamics governing international stock markets.

Tax aggressiveness under concentrated ownership: The importance of long-term institutional investors

Using a sample of 1,707 firm-year observations for the period 2010–2019 based on the Warsaw Stock Exchange, we reveal the positive relation between corporate tax aggressiveness and long-term institutional ownership. Controlling for a “normal level” of tax avoidance within the industry and firm size we provide evidence that tax aggressiveness increases with the increase of shareholdings of independent long-term institutional investors, domestic long-term institutional investors, and long-term institutional investors holding relatively large stakes. This relation holds for firms prone to severe agency problems, such as family firms. Our results thus suggest that ownership structure affects corporate tax avoidance, in line with the agency perspective of corporate tax aggressiveness.

스튜어드십 코드와 일본기업의 연구개발투자

Purpose: This paper explores the influence of both domestic and international institutional investors, recognized as emerging outside blockholders in Japanese firms, on R&D investment. The study aims to understand how these investors impact R&D spending, a crucial factor for sustainable growth, particularly in the context of the implementation of the Stewardship Code.
 Research design, data, and methodology: The analysis employed panel analysis on 105 manufacturing companies listed on Nikkei225 from 2014 to 2020. We used the intensity of R&D as the dependent variable, with institutional investors holding more than 3% of each company’s shares as the independent variable. By classifying institutional investors, we compared the results between domestic and foreign institutional investors.
 Results: The analysis revealed that outside blockholders had a significantly positive effect on R&D. However, when institutions were classified, different results emerged. While domestic institutional investors had a significant positive impact on R&D, foreign institutional investors did not yield statistically significant results. Additionally, the financial institution variable, acting as the control variable and related to insider investors, consistently demonstrated a significantly negative effect across all models.
 Implications: Despite foreign institutional investors dominating the Japanese stock market, it was found that domestic institutional investors have emerged as significant outside blockholders in each firm. Traditionally criticized as passive investors, domestic institutional investors are shown to influence and promote R&D for long-term growth, in line with the Japanese stewardship code. While foreign investors are often associated with potential decreases in R&D for short-term gains such as ROE and dividends, no significant evidence was found. Moreover, with increasing stake ratios, foreign investors have the potential to positively impact Japanese firms in the future.

Determinants of Institutional Ownership in the MENA Region

This study explores the main determinants of institutional ownership in the MENA region. Using a large sample of 262 listed companies across MENA countries, this study focuses on company and country characteristics that might explain institutional behavior. We attempt to answer the following questions: First, what are the main categories of institutional investors operating in MENA countries? Secondly, what factors drive institutional ownership? Results reveal a weak presence of institutional investors in the MENA region. Unlike foreign and passive investors, domestic and active institutional investors dominate the companies’ ownership. Such findings raise serious issues about how to attract foreign institutional investors. Results also suggest that value stocks appeal to institutional investors, whatever their origin (foreign or domestic) and kind (active or passive). Institutional investors look for large, profitable, and liquid companies that pay high dividends. They prefer investing in highly indebted companies as they consider debt an efficient mechanism to mitigate agency problems. Corporate governance and information disclosure are also crucial determinants of institutional ownership. However, foreign-domestic and active-passive institutional investors have different investment preferences. Our study would contribute to a better understanding of ownership endogeneity within an emerging context. Results would help professionals, managers, and policymakers to adopt appropriate reforms to offer an appealing business climate and attract a large base of institutional investors, not only foreign and active investors.

Who should select the external auditor in emerging economies? Role of institutional ownership and family ownership

Aim/purpose – This study reports the demand for Big 4 audits among institutional and family owners, the two dominant ownerships in the GCC countries. We conducted this in-depth study to gain an understanding of the type of firms, family-owned or institu- tional-owned firms that lead to choosing audit firms. Design/methodology/approach – This study employed a quantitative cross-country study by selecting a sample based on secondary data extracted from the Capital IQ data- -set from a panel of 1827 non-financial firms listed on the stock exchanges of the Gulf Cooperation Council (GCC) countries from 2010 to 2018. The hypothesized effects of institutional ownership (IO) and family ownership (FO) on the selection of external auditors in these countries were examined using logit, probit, and heteroskedastic probit analysis. Findings – The study finds that institutional investors play a crucial role in influencing firms’ choice of auditors in the GCC. Family-owned firms tend to hire non-Big 4 firms when the owners actively monitor the firms’ financial transactions. In addition, the study finds that both domestic and foreign institutional investors have a significant positive effect on auditor selection, with domestic institutional investors having priority. These findings support the efforts of market authorities in the GCC to highlight the critical role of IO over FO in improving audit quality. Research implications/limitations – The results are highly relevant for shareholders, executives, institutional investors, regulators, and academics. They help them improve the growth of capital and audit markets by developing best practices, thereby helping achieve an optimal framework for auditor choice that matches higher audit quality. This study focuses on only two types of ownership structures (institution and family) despite the many options because of the extensive debates and discussions on the association between the studied ownership types and auditor choice. Originality/value/contribution – Study highlighted the role of institutional investors in GCC countries as one of the most attractive emerging economies in the Middle East. Since no research has been conducted on the role of institutional and family investors in selecting external auditors in GCC countries, this study has made a significant contribu- tion to the accounting and auditing literature. It mitigates the gap in the literature on emerging markets. The findings can provide policymakers with guidelines for including institutional investors and FO in GCC countries to ensure high-quality audits. Keywords: institutional ownership (IO), family ownership (FO), auditor choice, Gulf Cooperation Council, emerging economies. JEL Classification: G23, G32, D10, M42.

Indian Stock Market Drivers on a Cusp of Change: An Empirical Study

Domestic and Foreign institutional investors are professional investors who aim to profit from price movements in the stock market. These investors not only profit from their investments but also drive the stock market of any country. The study examines the association between Sensex Nifty 50’s movements and investing patterns of FIIs, DIIS and the causal relationship between stock market returns and institutional investments (FIIS and DIIs). The study also analyses the impact of FIIs and DIIs in driving the Indian stock market. The study employed correlation analysis, vector autoregression model, Block exogeneity Wald-test and the Granger causality test for the objectives. Our results indicate the gradual fall in the FIIs-DIIs ratio in the Indian stock market, making domestic institutional investors a prominent counterforce to FIIs and establishing it as an equal driver. DIIs act as positive feedback traders, while FIIs act as neutral to negative traders. The causality test demonstrates that market return has a significant impact on both the players, but neither FIIs nor DIIs have a significant impact on market movement.

Indian Stock Market Regularity: The Turn of the Month Effect

Recent empirical studies have identified the presence of the Turn of the Month (TOM) effect on various stock markets. This effect is a yell-knoYn calendar anomaly in stock markets, characterized by higher returns and increased trading volume around the beginning of each month. The researchers have proposed several explanations for this anomaly, includ- ing factors such as increased liquidity, YindoY dressing practices, and neys announcements. This study focuses on investigating the TOM effect in the Indian stock market, specifically focusing on size of firms and trading activity by individual investors, as Yell as domestic and foreign institutional investors. We analysed the closing prices of four indices (Nifty 50, S&P BSE Sensex, Nifty SmallCap 50, and BSE SmallCap) from April 2007 to February 2023. Our analysis involved using parametric t-tests and non-parametric Mann-Whitney U tests to assess the significance of our findings. The results indicate that the TOM effect is indeed significant in the Indian stock market, Yith higher returns observed during the days surrounding the TOM. Furthermore, this effect is more pronounced in smaller indices com- pared to larger ones. Additionally, Ye found that domestic institutional investors engage in significant trading activity toYards the end of the trading month, Yhile individual investors do not demonstrate the same pattern. Foreign investors also exhibit notable differences in trading activity betYeen the TOM and the rest of the month.

개인, 국내 기관, 외국인투자자의 거래유형과 최초공모주의 주가 변동성과의 관계 분석

개인, 국내 기관, 외국인투자자의 거래유형과 최초공모주의 주가 변동성과의 관계 분석

Trading Behaviour Exhibited by Institutional Investors During Calm and Volatile Periods in the Indian Scenario

The stock market is the reflection of the trading pattern of various investors. The present study attempts to examine the trading behaviour followed by foreign institutional investors, domestic institutional investors and mutual funds during 2010–2020 in the Indian stock market. The whole time period is divided into two subperiods using the chow breakpoint test. Two vector autoregression framework models accompanied with impulse response function and variance decomposition analysis are employed in both the subperiods, namely calm period and volatile period. It is found that the institutional investors do not pay heed to the market returns in the calm period, while the interdependency among the institutional investors increases in the volatile period. The structural break enhances the forecasting accuracy of the model significantly. This study will help the government to understand the impact of calm period and volatile period on the trading behaviours of the institutional investors and thereby their sentiments in the Indian stock market. JEL Codes: G1, G23

Does ownership structure influence carbon emission? Different roles of institutional investors

This study seeks to understand the impact of different ownership structures on carbon emissions. We use data from listed firms in Japan, where the government requires firms to disclose the volume of carbon they emit. Our empirical findings are summarized as follows. First, the cross-sectional analysis reveals that firms with foreign institutional investors tend to emit less CO2. In contrast, we do not find evidence that domestic institutional investors reduce carbon emissions. The results are robust under various alternative estimations, such as firm-fixed effects, propensity score matching, and IV (instrumental variable) estimation; they are also robust when the enactment of Principal Responsible Investment (PRI) by the United Nations is included as an exogenous shock. While various studies have examined the factors affecting a firm’s carbon emissions, few studies examine the influence of its ownership structure. We focus on firm ownership structure, especially ownership by institutional investors, because of their substantial impact on managerial decision-making.

The Predictive Power of Macroeconomic Variables on the Indian Stock Market Utilizing an Ann Model Approach: An Empirical Investigation Based on BSE Sensex

Abstract Research background The paper focuses on the use of Artificial Neural Networks (ANNs) for forecasting time series data of the stock market since ANNs are dynamic and are more capable of handling complex data sets in comparison to conventional forecasting techniques such as regression, Logistic regression, and have massive potential for the prediction of stock market prices. Purpose Artificial neural networks are an effective method for forecasting time series. Therefore, this study aims to forecast the closing price of the BSE Sensex using artificial neural networks (ANNs). Research methodology The study uses nine input variables, including macroeconomic and global stock market factors, to estimate the BSE Sensex using scaled conjugate gradient algorithm artificial neural networks (SCGANNs) and Bayesian regularized artificial neural networks (BRANN). Results As per the empirical results of the study, the ANN model can forecast the closing values of the BSE Sensex with a Bayesian Regularization (BR) method with an accuracy of over 99 percent, thus leading to significant implications for domestic institutional investors (DIIs), foreign institutional investors (FIIs), investment houses, and so on. This study adds more value to the existing literature by proving that the BRANN models outperform SCGANN in stock market forecasting. Novelty This is the first study to employ macroeconomic variables as input variables for predicting the Indian stock market using ANN. The study highlights the ANN model’s forecasting potential, giving investors robust and accurate stock value prediction capabilities.

The valuation effect of going International: evidence from QDII in China

ABSTRACT This paper attempts to evaluate the valuation effect of deregulation policy on capital outflows by an event study approach. Using the policy announcement of Qualified Domestic Institutional Investor (QDII) and Bond Connect in China, we find a short-term valuation effect that the stock market responds negatively to the deregulation on capital outflows and firm’s size could act as a shield to defend this shock. Moreover, the financially constrained firms are more negatively affected by this policy shock, suggesting that financial vulnerability is an important force driving down the stock valuation. Finally, both the quality of corporate governance and bureaucratic quality of local government could help firms to avoid valuation loss from this policy shock especially those with tight financial constraints.

Institutional investors by nationality and long-term investor value appropriation

This study investigates the impact of institutional investors on firm value, concentrating specifically on the role of institutional monitoring by nationality in long-term investor-value appropriation (LIVA). The findings reveal a significant positive correlation between domestic institutional ownership and LIVA. Moreover, the presence of independent domestic institutional investors accentuates the strength of this relationship. Notably, this study demonstrates that domestic institutional monitoring significantly impacts firms with high information asymmetry, thus underscoring the monitoring costs associated with geographic distance. In summary, it reinforces the existing body of evidence supporting the monitoring function of domestic institutional investors in influencing firm decisions. It elucidates the variations in long-term firm value by delineating the distinct monitoring roles of domestic and foreign institutional investors.

Role of institutional investors in reviving loss-making firms: evidence from India

PurposeThe present study aims to verify whether there is a positive (negative) role being played by the institutional investors on the loss-making companies' performance.Design/methodology/approachThe authors employ panel data regression and two-step system generalised method of moments (SYS-GMM) to test the above objective.FindingsThe empirical results clearly show that no positive relation is found between institutional investors and loss-making companies' performance.Research limitations/implicationsThe findings of the study might have significant implications for firms to improve the firms' operational performance [return on assets (ROA)]. Also, the firm's financial performance [return on equity (ROE)] could be improved by increasing profitability which will reflect in the share prices of the firms whereby the performance can build the investors' confidence over the firm. Market performance (Tobin's Q) could be increased by providing more attractive offers and discounts to customers to capture the business opportunities available in the market.Practical implicationsThe overall findings might have for reaching implications in the manufacturing sector with regard to allowing (disallowing) institutional investors.Social implicationsThe results of the study may help both companies and institutional investors.Originality/valueThis is the maiden attempt to study whether loss-making companies could be positively (negatively) impacted by the arrival of sophisticated institutional investors [foreign institutional investors (FIIs) and domestic institutional investors (DIIs)]. Further, this study is largely different from previous studies in terms of using new variables which are related to firm characteristics and valuation multiples. Further, seeing if the institutional investors tend to enhance the firm performance is curious.

Impact of institutional ownership on environmental disclosure in Indonesian companies

PurposeThis study aims to investigate the effect of the classification of origin country of institutional shareholder (domestic, developed and developing country) and its status on stock exchange (listed and unlisted) on environmental disclosure level in Indonesian companies.Design/methodology/approachThe data set comprises 474 non-financial firms listed in Indonesian Stock Exchange (IDX) for the period of 2017 to 2019. The study uses an environmental disclosure checklist to measure the extent of environmental disclosure in companies’ reports. Panel regression analysis technique is adopted to investigate the association between total percentage of shares held by institutional shareholders based on the classification of origin country and the status in stock exchange, and the extent of environmental disclosure.FindingsThe study reveals that the extent of environmental disclosure is positively and significantly associated with institutional investors from domestic, developed countries, listed and unlisted institutional investors. Further analysis shows interesting results that institutions from developing countries have a negative and significant relationship with environmental disclosure in non-sensitive industries.Research limitations/implicationsThe authors recognize the issue of authors’ subjectivity in the measurement process of environmental disclosure. The sample for this study encompasses Indonesian listed firms. Thus, the results may not be generalized to Indonesian unlisted firms and other countries or regions.Practical implicationsThis study suggests managers to engage more with institutional shareholders because they have greater concern for environmental disclosure practices. The current study also suggests managers to make strong environmental policies as they are important to ensure that institutional shareholders’ investments are safe.Social implicationsGiven the positive impact institutional shareholders have on the level of environmental disclosure, it indirectly indicates that institutional shareholders have a strong motivation to make the world a better place.Originality/valueThis study offers in-depth insights into the effect of institutional ownership on environmental disclosure based on the classification of origin country and listing status of institutional investors.

Do foreign institutional investors influence corporate climate change disclosure quality? International evidence

AbstractResearch Question/IssueWe examine the association between foreign institutional ownership and climate change disclosure quality from 2006 to 2018 across 34 countries. We find that firms with a higher level of foreign institutional ownership demonstrate better quality climate change disclosures, whereas domestic institutional ownership has immaterial impacts on such disclosures. We utilize a difference‐in‐differences (DiD) analysis using a firm's addition to the Morgan Stanley Capital International (MSCI) index as an exogenous shock to control for endogeneity. Our findings are robust to various other endogeneity controls. We also establish evidence on an indirect effect of climate change disclosure quality in mediating the positive association between foreign institutional investors and firm valuation.Research Findings/InsightsWe find that the positive association between foreign institutional ownership and climate change disclosure quality is more pronounced for (1) firms domiciled in stakeholder‐orientated countries, (2) firms domiciled in countries that adopt emission trading schemes, and (3) firms with a greater level of information asymmetry. Additionally, our results are more robust when foreign investors are domiciled in countries that care more about the environment.Theoretical/Academic ImplicationsOur study contributes to climate change disclosures, corporate governance, and international business literature by showing that foreign rather than domestic institutional investors contribute to improved corporate climate change disclosure quality in their portfolio firms.Practitioner/Policy ImplicationsOur study urges regulators to increase their market oversight, especially in firms with less foreign institutional ownership. This is required because such firms are prone to exhibiting poorer accountability for their climate risk management practices, and their disclosures are bereft of effective external monitoring mechanisms.

Who pays the liquidity cost? Central bank announcements and adverse selection

AbstractThis study examines whether the composition of market participants contributes to shaping market liquidity around central bank announcements. By analyzing transaction‐level data from a stock index futures market, we find that the roles of foreign and domestic institutional investors in taking or providing liquidity, respectively, are switched following the news announcements. The participation of domestic (foreign) institutions is negatively (positively) associated with liquidity provision shortly after the announcements, whereas they provide (consume) liquidity in general. The change in domestic institutions' roles is attributed to their advantages in processing local news as it is pronounced when they actively participate. Domestic individuals remain largely noisy and unresponsive. Overall, the results support the existence of adverse selection costs in the order‐driven context and imply that institutional investors may trade with the wind when they have information superiority.

The diligent effect of investor relation officers in conference calls: Evidence from China

This study explores the determinants of investor relations (IR) officers’ diligence in conference calls and the impact of their diligence on capital markets. We apply IR officers' attendance in conference calls as a proxy variable for their diligence. We find that the age, gender, salary, and tenure of IR officers and the start time of conference calls are determinants of IR officers' diligence in conference calls. Their diligence significantly increases institutional ownership and reduces returns volatility. Further analysis shows that IR officers' diligence facilitates the growth of domestic institutional investors' ownership significantly more than that of foreign institutional investors. In addition, information transparency significantly facilitates the relationship between IR officers' diligence and return volatility. Finally, the change in institutional ownership and return volatility also varies with firm size and state ownership. In conclusion, we find that IR officers' diligence plays a positive role in IR management, as it significantly improves firms' institutional ownership and lowers return volatility.

How do investors react to overnight returns? Evidence from Korea

We find a negative relationship between overnight and daytime returns on the Korean equity market. Overnight returns are positively (negatively) and nonlinearly associated with subsequent daytime returns when the overnight news is relatively good (bad). Trades by individual investors respond negatively to overnight returns, whereas those by domestic and foreign institutional investors exhibit positive-feedback trading behavior. Our findings challenge the conventional presumption about investors’ responses to overnight returns.