Effect Of Institutional Investors Research Articles

The effects of institutional investors and munificence on board chair orientations

The effects of institutional investors and munificence on board chair orientations

Institutional investors’ site visits and firms’ financial distress

In this paper, we investigate whether and how institutional investors’ site visits affect the financial distress of listed companies. By employing Chinese firms listed on the SZSE from 2013 to 2021, we find that institutional investors’ site visits significantly restrain financial distress and that this effect is more pronounced for firms with lower-quality information environments and corporate governance. The results are robust to several robustness checks and pass two endogeneity tests. We further find that the effect of institutional investors’ site visits on corporate financial distress is greater for groups of firms with larger institutional shareholding and that the effect of institutional investors’ site visits on corporate financial distress in non-SOEs is more significant than that in SOEs. We also find the restraints of financial distress caused by institutional investors’ site visits can also improve firms’ market value. Finally, the routine and unexpected visits have the same restraining effect on financial distress.

Stabilizing or destabilizing: the effect of institutional investors on stock return volatility in an emerging market

Purpose This study aims to examine the impact of institutional investors and their classes on the stock return volatility of an emerging market. The paper also determines the moderating role of firm size, crisis and turnover on such relationships. Design/methodology/approach The study covers nonfinancial companies of the Bombay Stock Exchange-100 index that are listed during the study period. The study uses fixed effects and systematic generalized method of moments estimators to look over the association between institutional investors and firms’ stock return volatility. Findings The study provides evidence that institutional investors destabilize the Indian stock market. It indicates that institutional investors do not engage in management activities; they earn short-term gains depending on information efficiency. Pressure-insensitive institutional investors have a significant positive relation with stock return volatility, while pressure-sensitive institutional investors do not. The study also reflects that pressure-sensitive institutional investors are underweighted in India, which jointly represents an insignificant nonlinear association between institutional ownership and stocks’ volatility. Furthermore, outcomes reveal that the intersection effect of the crisis, firm size and turnover is positively and significantly related to such relationships. Research limitations/implications The outcomes encourage initiatives that keep track of institutional investors in the Indian stock market. To control the destabilizing effect of pressure-insensitive institutional investors, regulators should follow strict regulations on their trading patterns. Moreover, it guides the potential researchers that they should also take into account the impact of other classes of ownership structure or what type of ownership can help in stabilizing or destabilizing the Indian stock market. Originality/value Abundant literature studies the relationship between institutional ownership and firm performance in the Indian context. From the standpoint of making management decisions, the return and volatility of stock returns are both different aspects. However, this study examines the effect of institutional ownership and its groups on the volatility of stock return using the panel data estimator, which was previously not discussed in the literature.

Stretch or Suppress: Role of Owners and Nominee Directors in Financial Distress

This study investigates the effect of various firm-level corporate governance mechanisms on the likelihood of financial distress in India. We analyze the competing hypotheses of interest alignment and agency theory, examining how controlling shareholders affect the probability of financial distress. Additionally, we assess the potential impact of institutional investor shareholding and bank-appointed directors on the likelihood of financial distress. Our findings suggest that increasing controlling shareholder ownership decreases the probability of distress. However, the effects of institutional investors and bank-appointed directors vary and also depend on the quantum of shareholding of institutional investors and affiliation with business groups. Our results offer insights into improving governance in economies with higher ownership concentration, weaker institutional frameworks, and greater bank participation in credit facilitation. JEL Codes: G32, G33, G34

The power of critical mass to make a difference: how gender diversity in board affect US corporate carbon performance

PurposeThis study aims to examine the impact of board gender diversity on company greenhouse gas (GHG) performance, the influence of a critical mass of women on boards on carbon performance (CP) score and its three components separately (Scope 1, Scope 2 and Scope 3). This study examines the presence of institutional investors as a contingent factor that intensifies the effectiveness of the critical mass of female directors on CP.Design/methodology/approachUsing a sample of the US companies listed on Securities and Exchange Commission for the period 2011–2018 and making a total of 2416 observations. This study shows that reaching a critical mass of female board members enhances the level of CP. In addition, this study finds that the presence of institutional investors positively moderates this relationship.FindingsThe main results suggest that there is a nonlinear relationship between a critical mass of women directors and CP, and that institutional investors play a strategic role in shaping this relationship. The effect of institutional investors on the three components of CP is also analyzed.Research limitations/implicationsThis research is characterized by the methodology adopted for a quantitative variable for measuring CP. Indeed, other research the proxies related to carbon measurements are often used as a simple binary variable. This study verifies the harmony of the theory of critical mass measuring diversity within the board of directors, the presence of institutional investors on GHG emissions (Scope 1, Scope 2 and Scope 3), unlike previous studies (Tingbani et al., 2020; Nuber and Velte, 2021) which only focus on the two measures of carbon emissions (Scope 1 and Scope 2).Originality/valueThis study shows identically that gender diversity on the board must reach a critical mass of three women directors to motivate and influence CP. We fill the gap in previous research regarding the role played by the institutional environment of the firm in improving CP. Third, this study highlights the relevance of having a critical mass of pressure-resistant female directors on boards due to their engagement in climate change issues and CP.

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.

Minority shareholder activism and corporate social responsibility

China has many minority shareholders, but it is still unclear whether they actively influence corporate social responsibility (CSR) decisions to protect their own benefits. However, previous research mainly focuses on the effect of institutional investors on CSR. Based on big data from China's influential stock forums, we developed a novel measure of minority shareholder activism (MSA) to capture the time and effort invested by minority shareholders. Using firm-level data from China during 2010–2018 and the novel measure, we find that MSA improves CSR performance. Furthermore, this effect of MSA on CSR weakens in polluting industries after implementing the new environmental protection law, implying that MSA improves CSR through monitoring mechanisms, particularly in an imperfect legal system. Cross-sectionally, this main effect is influenced by sentiment, financial constraints, ownership, analyst coverage, transparency, and public pressure. Our findings suggest that MSA can affect corporate decision-making and generate social benefits. • We use big data to develop a novel measure of minority shareholder activism (MSA). • The effect of MSA on corporate social responsibility (CSR) is examined. • MSA has a positive effect on CSR performance. • Monitoring channels explain the positive effect. • Sentiment, financial constraints, ownership, and public pressure are moderators.

A Rose has its Thorn: The role of institutional investors in SEO firms’ reporting behavior

This study investigates whether monitoring by institutional investors mitigates or facilitates earnings management around seasoned equity offerings (SEOs). We also explore how the capital market reacts to the (monitoring/self-serving) effect of institutional investors on earnings management. Results suggest that active, rather than inactive, institutions effectively reduce real earnings manipulation around SEOs. However, when SEO firms with high active institutional ownership engage in real earnings management, the capital market adversely reacts to this monitoring malfunction. Results remain robust after considering endogeneity, corporate governance, and financial crises.

Executive shareholding, institutional investor shareholding and enterprise innovation

PurposeThe purpose of this study is to empirically investigate the relationship between executive shareholding, institutional investor shareholding and corporate innovation, and to further explore in depth the impact of executive shareholding on corporate innovation under different industries.Design/methodology/approachThis paper uses the panel data of A-share listed companies in Shanghai and Shenzhen from 2012 to 2020 as the research sample to empirically study the relationship between executive shareholding, institutional investor shareholding and corporate innovation based on multiple linear regression models and panel fixed effects.FindingsThe research shows that: on the whole, the impact of executive shareholding on enterprise innovation presents an inverted “U” shape; institutional investors will negatively regulate the impact of executive shareholding on enterprise innovation; the impact of executive shareholding on enterprise innovation will show obvious industry differences in different industries.Research limitations/implicationsThe empirical results not only enrich the research on the effects of institutional investors' involvement in corporate governance practice, but also provide targeted experience for promoting enterprise innovation. Due to the limitations of innovation indicators and industry sample selection, it is necessary to be cautious when extending the results to other fields.Practical implicationsEnterprises should fully consider the impact of executive shareholding on innovation and formulate a scientific executive incentive system according to the differences of their industries. The government should be aware of the important role of institutional investors in enterprises, improve the channels and ways for institutional investors to participate in corporate governance, and improve the basic system of capital markets.Originality/valueOn the one hand, this paper empirically tests the regulatory role of institutional investors' shareholding and the relationship between executive shareholding and enterprise innovation, which enriches the research on the effect of institutional investors' involvement in corporate governance practice. On the other hand, the research by industry is more targeted to provide experience for promoting enterprise innovation.

The effect of institutional investors’ site visits: evidence on corporate cash holdings

ABSTRACT This study examines the impact of institutional investors’ site visits (SVs) on corporate cash holdings by using a unique dataset of SVs in China during the period of 2012–2019. We find that SVs significantly increase the level of cash holdings, and the result remains robust after addressing endogeneity concerns and selection bias. The positive impact of SVs on cash holding is more pronounced if a firm has a lower information quality, confirming that SVs facilitate information distribution between managers and investors and thus allowing more cash holding. Further analyses show that firms rely greatly on equity issues and internal cash flows for cash savings, and SVs increase the value of cash for shareholders. Collectively, our findings suggest a new effect of institutional investors’ site visits.

Effects of Institutional Investors' Activism on Corporate Risk-Taking Activities

To examines the relationship of institutional investors' activism and corporate risk-taking in Malaysian non-financial firms. Selected Malaysian non-financial firms between 2000 and 2018 were analysed using Generalised Least Square (GLS) and Generalised Method of Moments (GMM) to solve endogeneity issues. This study demonstrates that active institutional investors could play their role by surveillance to reduce unnecessary risky investment by firms. The assessment of institutional ownership is limited to institutional investors' percentage of ownership only. This study suggests updating the governance framework for institutional investors’ diversity in Malaysian context to improve corporate governance. Institutional investors may play an active or inactive role in firms in deciding how often the participation of institutional investors does not offer robust alternatives to corporate risk-taking. Data from prior studies were inconclusive.

Institutional investors and the value of excess cash holdings: empirical evidence from Pakistan

PurposeThis study examines the effects of foreign and domestic institutional investors on the value of excess cash holdings in the context of Pakistan where the institutional setting is broadly considered as non-friendly to outside shareholders due to family control.Design/methodology/approachA panel sample of 220 listed firms on the Pakistan Stock Exchange (PSX) was employed over the period 2007–2018. Data on institutional ownership are collected from the Standard & Poor’s (S&P) Capital IQ Public Ownership database, while the financial data are collected from Compustat Global. The study uses ordinary least squares (OLS) regression with year and firm fixed effects as the main econometric specification. Moreover, the application of models with alternative measures, high-dimensional fixed effects and two-stage least squares (2SLS) regression are also conducted for robustness.FindingsRobust evidence was found that unlike domestic institutional investors, which do not influence the value of excess cash holdings, foreign institutional investors positively affect the contribution of excess cash holdings to firm value. The positive effect on excess cash holdings' value is mainly driven by foreign institutions domiciled in countries with strong governance and high investor protection. Moreover, this effect is stronger in firms that are less likely to have financial constraints.Originality/valueThis study provides novel evidence on the effect of institutional investors on the value of excess cash holdings in an emerging market like Pakistan. It also adds to the literature by revealing that the effect of different groups of institutional investors on the value of excess cash holdings is not homogenous.

How does ownership by corporate managers affect R&D in the UK? The moderating impact of institutional investors

PurposeThis paper tests for a positive, a negative and a nonlinear relationship between the share of ownership controlled by firm managers and the management decision to invest in research and development (R&D). Likewise, it examines whether or not institutional investors induce corporate managers with ownership stakes to spend on R&D.Design/methodology/approachIt examines a sample of the United Kingdom (UK) Financial Times Stock Exchange (FTSE) all-shares firms over a longitudinal period from 2009 to 2018. The R&D is measured by the natural logarithm of a firm's R&D spending and a firm's R&D expenditure scaled by its total assets at the end of the year. The results are estimated using the year/industry fixed effects as well as the firm fixed effects.FindingsThe results show a positive effect on R&D spending at a lower level of managerial ownership, and a negative impact at a higher managerial ownership level. The findings jointly suggest an inverse U-shaped nonlinear relationship between ownership by firm managers and management decisions on R&D spending. The results also demonstrate that the effect of institutional investors' ownership on R&D spending decisions is observable only at a lower level of managerial ownership and disappears at a higher level.Practical implicationsThe results shed the light on the role of managerial ownership in promoting firm innovation. They suggest an optimal level of equity ownership by corporate managers that maximizes R&D spending, implying that firms can effectively manage their R&D spending by restructuring their managerial ownership to maintain an appropriate level of managerial ownership to align managerial interests with shareholder interests by either increasing it to the optimal level or decreasing it when it becomes above this level. The findings also support the limited degree of monitoring and the long-term perspective offered by institutional investors in the UKOriginality/valueThe study provides new evidence on the non-monotonic effect of the share of ownership controlled by firm managers on R&D spending decisions. It also expands the growing body of literature and contributes to the debate on the effectiveness of institutional investors in the UK.

Can institutional investors restrain stock market manipulation?--Empirical evidence from an emerging market

This paper analyzes the relationship between the proportion of institutional investors’ shareholding and the probability of stock manipulation using 252 cases of manipulation disclosed in public administrative penalty decision of the China Securities Regulatory Commission (CSRC) from 2007 to 2019. The empirical results show that the higher the proportion of institutional investors’ shareholding, the lower the probability of market manipulation. Further analysis shows that the effect is mainly shown in non-shortable stocks. Moreover, controlling for the endogeneity using exogenous policy shocks, the effect of institutional investors on restraining market manipulation still exists. In the end, considering the fact that the cases of market manipulation detected by the CSRC are only a part of the real cases, this paper uses Bivariate Probit model with partial observability and finds that the higher the proportion of institutional investors’ shareholding, the lower the probability of stocks being manipulated and the higher probability of being detected after manipulation.

The effect of institutional investors’ distraction on firms’ corporate social responsibility engagement: evidence from China

To investigate the impact of institutional investors on firms’ corporate social responsibility (CSR) engagement while controlling for possible endogeneity concerns, we study how Chinese listed firms adjust their CSR decisions when their institutional investors are distracted by exogenous attention-grabbing events and thus are inattentive. With a sample of Chinese listed firms from 2009 to 2017, we find a significant and robust negative relationship between institutional investor inattention and firms’ CSR engagement. This negative relationship is more pronounced for firms with more principal–agent problems and/or weaker corporate governances and is more attributable to the inattention of institutional investors with more monitoring incentives. These findings suggest that managers are less motivated to engage in CSR when they are less monitored by institutional investors, indicating that CSR is beneficial to shareholders of Chinese listed firms. Our findings also indicate that the positive impact of institutional investors on CSR may be constrained by their limited attention.

The Effect of Institutional Investors’ Voice on the Terms and Outcome of Freeze-out Tender Offers

We study the impact of institutional investors’ “voice” on 201 going private tender offers by controlling shareholders (“freeze-out” offers) in Israel. Israeli regulatory intervention in freeze-out tender offers is relatively mild; thus, institutional investors’ activism becomes crucial. We find that institutional voice has dual effects. On one hand, when there are pre-negotiations with institutional investors’ (their voice is heard), accepted offers’ premiums increase. On the other hand, when institutional investors express their voice, yet reject the offer, these rejections appear to hurt shareholders’ value. We also document significant institutional investor exit after rejected offers, especially after offers preceded by voice (pre-negotiations with institutional investors).

Institutional Ownership and Firm Performance under Stakeholder-Oriented Corporate Governance

This study aimed to reveal the role of institutional investors with shareholder-oriented scopes in a stakeholder-oriented economy such as Japan. With financial globalization, the increasing number of institutional shareholders in Japanese corporations enables us to investigate whether their shareholder-oriented perspectives are conducive to taking on effective monitoring roles under stakeholder-oriented corporate governance. This study’s sample included large listed firms of the TOPIX 500 in Japan during 2010-2016. Using 2924 firm-year observations, the effect of institutional investors on firm performance was analyzed to test the role of institutional investors in stakeholder-oriented corporate governance. Our study showed that the monitoring role of institutional shareholders, or foreign shareholders, functions effectively in Japanese corporations. In addition, we showed that the monitoring roles of these are expected to strengthen firms through higher growth opportunities. These results implied that institutional shareholders contribute to enhancing sustainable firm performance and constructing sustainable corporate governance mechanisms in a stakeholder-oriented system.

A Study on the Relationship between the Investment of Institutional Investors and Macroeconomic Prudence

ABSTRACTThis paper analyses the financial assets of institutional investors and pension funds to estimate how the change in portfolio affects returns and whether the realisation of returns can improve macroeconomic prudence. From the analysis, this paper offers several findings. First, the increase in the weighted return rates of institutional investors and pension funds lowers GDP volatility and improves macroeconomic prudence. Second, the portfolio composition effect of institutional investors and pension funds can also affect improving macroeconomic prudence. And the effect of composition effect in macroeconomic prudence improvement is greater in countries with high financial openness, for both institutional investors and pension funds.

외부대규모기관투자자가 재무분석가의 이익예측오차에 미치는 영향

외부대규모기관투자자가 재무분석가의 이익예측오차에 미치는 영향

The Effect of Institutional Investors on Financial Reporting Comparability in the U.S.: Evidence from Common Institutional Blockholders

We examine the role of institutional investors, in particular common institutional blockholders, in facilitating the financial reporting comparability of U.S. firms. We define common ownership as a situation where a given institutional investor holds at least 5% of shares in at least two firms in the same industry. We find that common ownership increases the comparability of a firm’s financial statements to those of its industry peers. The effect is stronger when common institutional blockholders invest in a higher number of firms in a given industry, when they hold a longer investment horizon/a larger stake in a firm, and when they rely more on public information. Next, we show that the effect of common ownership on the firm’s reporting comparability takes place through the hiring of industry auditor specialists and discretionary accounting choices (e.g., goodwill impairment, other asset write-downs, and non-recurring items). Finally, common ownership leads to an increased use of accounting-based relative performance evaluation in executive compensation, supporting the argument that common institutional blockholders help improve financial reporting comparability, which allows more efficient monitoring of managers.