Foreign Institutional Ownership Research Articles

Foreign Institutional Ownership and Earnings Management

This study investigates the relationship between foreign institutional ownership (FIO) and earnings management (EM) using 552 firms of non-financial sector companies that publish annual financial reports for 2015–2021. We use ordinary least squares (OLS) for equation estimation. The results show that, overall, FIO has a negative impact on earnings management. Tests were also conducted on the FIO group: banks, insurance, pension fund mutual funds, and securities companies. The test results indicate that each group of institutional investors has a negative effect except for securities companies, which positively impact earnings management. The positive influence of securities firms shows that securities firms are more focused on trading strategies than managerial controls. The findings of this study are expected to contribute to the corporate governance literature and the quality of financial reporting. Institutional ownership as a corporate governance mechanism is expected to control earnings management which can reduce the quality of financial reporting. Keywords: institutional ownership, earnings management, agency theory

Foreign institutional ownership and corporate labor investment

AbstractWe examine the impact of foreign institutional ownership on firms' labor investment efficiency. Using a comprehensive global sample of firms across 37 non‐U.S. countries, we find that greater ownership by foreign institutional investors is significantly associated with lower deviations of labor investment from the level justified by economic fundamentals, that is, higher labor investment efficiency. Independent, U.S.‐based and common‐law foreign institutional investors increase labor investment efficiency to a greater extent than their gray, non‐U.S.‐based and civil‐law peers. We further find evidence supporting the value creation of foreign institutions through the improvement in labor investment efficiency. Overall, our results suggest that foreign institutional investors promote good corporate governance practices around the world.

Foreign institutional investors’ certification and domestic minority shareholders’ mistrust

AbstractUsing hand‐collected data from China's split share structure reform (SSSR) program, we show that foreign institutional investors’ certification mitigates domestic minority shareholders’ mistrust of controlling shareholders’ reform plans and facilitates the implementation of the SSSR. Domestic minority shareholders cast fewer dissenting votes, complete the SSSR more quickly but with lower compensation, and achieve higher stock return reactions in reforming firms with higher foreign institutional ownership. Foreign institutional investors’ prestige is a key factor in aligning domestic minority shareholders toward seeking long‐term payoffs. Our work reveals the positive role of foreign institutional investors’ certification in a salient reform of corporate governance.

Green-selecting: Foreign institutional ownership and corporate green practices

To address the widespread skepticism of firms’ environmental commitments, we show that foreign institutional ownership can positively predict the holding firm's real green practices. Exploiting the Stock Connect Programs in China which introduces the minority ownership of foreign institutions, we show that the selected firms significantly increase holdings of green patents, R&D expenses, access to green credits, and decrease carbon emissions. The effect is more pronounced if the foreign institutional investors are from countries with higher ESG standards. Analysis based on propensity-score-matched sample suggests that foreign institutional ownership sends a signal certifying the firm's green orientation, enabling it to access more capital and improve green performance. Overall, our study proposes foreign institutional holdings as a practical indicator of selecting genuinely green stocks.

Foreign versus domestic institutional ownership and stock price synchronicity in Taiwan

Foreign versus domestic institutional ownership and stock price synchronicity in Taiwan

Foreign Institutional Investors and Corporate Green Innovation: Evidence from an Emerging Economy

ABSTRACT This study investigates the impact of foreign institutional investors (FIIs) on corporate green innovation. We manually collected data on foreign institutional ownership (FIO) from 34 international jurisdictions between 2009 and 2020. We find that FIO has a positive, robust, and causal effect on the green innovation practices of Chinese listed companies. Moreover, our heterogeneity analyses indicate that this positive effect is more pronounced for FIIs originating from jurisdictions exhibiting greater environmental consciousness of and advancements in green technology as well as for those FIIs committed to the United Nations—supported Principles of Responsible Investment. Furthermore, we provide evidence suggesting that environmental information disclosure and monitoring serve as potential mechanisms through which FIIs catalyze corporate green innovation.

Foreign institutional ownership stability and stock price crash risk

This study investigates the impact of foreign institutional investors (FIIs) on stock price crash risk in India. Panel regression findings reveal that higher levels of FII holdings, signifying positional trading, exacerbate crash risk. Conversely, increased stability of FII holdings, indicative of active monitoring, diminishes crash risk. Notably, FIIs’ buying interest does not influence crash risk, affirming that their risk mitigation arises from active monitoring and not from curbing selling pressure. Further analysis reveals that FII stability reduces crash risk only when controlling shareholder (i.e., promoter) equity holding is low. This promoter effect is driven by domestic promoters and not foreign promoters.

Shifting Stakeholders Logics: Foreign Institutional Ownership and Corporate Social Responsibility

Shifting Stakeholders Logics: Foreign Institutional Ownership and Corporate Social Responsibility

Is Institutional Ownership Socially Responsible? Perspectives from Heterogeneity and Stability of Institutional Ownership

This study examines the relationship between institutional ownership and the corporate social responsibility (CSR) performance of companies in India. Referring to social market theory, the free cash flow theory of agency costs and the institutional theory of CSR, this study hypothesized a positive association between institutional ownership and CSR performance (CSP). It empirically tested the hypothesis on a sample of 814 firm-years from 2010 to 2019. The findings reveal a significantly positive association between institutional ownership persistence and CSP. The robustness of the findings is tested against the heterogeneity of institutional ownership, namely, domestic and foreign institutional ownership, with reference to the ‘hometown advantage hypothesis’ and ‘global investor hypothesis’. Domestic institutional ownership significantly impacts CSP in line with the ‘hometown advantage hypothesis’; meanwhile, the significant influence of foreign institutional ownership on CSR aligns with the ‘global investor hypothesis’.

THE ROLE OF FOREIGN OWNERSHIP, INSTITUTIONAL OWNERSHIP, INCOME-EARNING ABILITY, AND PROFITABILITY ON COMPANY CAPITAL STRUCTURE DYNAMICS

Capital structure is an essential decision for the company. Capital structure is related to the composition and contribution of the company's funding in operational activities. This study aims to identify and describe the variables that affect the company's capital structure. This study uses a quantitative approach with explanatory research. The analysis technique used in this study is to use descriptive analysis and statistical inferential analysis with multiple regression techniques. The population used is a manufacturing company listed on the Indonesia Stock Exchange. The sampling method used is purposive sampling. In this study, the purposive sampling criteria used included Companies that have conducted an IPO (Initial Public Offering) before 2016 and are listed on the Indonesia Stock Exchange and Companies that have published annual financial reports on the IDX from 2016 to 2020. The research variables used are capital structure, company size, profitability, foreign investor ownership, government ownership, and institutional ownership. The research results show that the variables of company income and ownership investors have no significant influence on the dynamics of the company's capital structure. Meanwhile, domestic institutional ownership and company profitability have an influence which is significant to the company's capital structure. There are differences in power, the influence of variables on the company's ability to generate income, investor ownership, and foreign and domestic institutional ownership between companies with share ownership by foreign investors and companies that only have domestic institutions.

Does US financial crisis influence the relationship between ownership holdings and stock performance? The case of a developing economy

This study investigates the influence of the U.S. financial crisis on the relationship between ownership holdings and stock performance by assessing the asymmetries between the effects of insider and institutional ownership before, during and after the U.S. financial crisis. The study examines NIFTY 500-listed companies over a period of 16 years, from 2002 to 2017, and distinguishes between three economic phases, namely the pre-crisis (2002–2007), the crisis (2008–2009) and the post-crisis (2010–2017) period. To test our hypothesis, we employ the panel-data techniques of feasible generalised least squares and system-generalised methods of moments to control for autocorrelation, heteroscedasticity and endogeneity issues. The findings reveal that insider ownership had significant U-shaped and inverted-U-shaped effects during the pre-crisis and the post-crisis phase, respectively, which confirms the existence of the monitoring and expropriation effects of insiders. The favourable effect of domestic institutions during the crisis phase supports the notion that such owners engage in efficient monitoring during periods of economic turbulence. The adverse effect of foreign institutional ownership during the pre-crisis period implies either a conflict of interest or capital-gain motives that resulted in selling behaviour when the market economy was growing. The time-variant effects of insider and institutional ownership are noted. Our findings have immense significance for investors and executives who wish to understand the varied effects of insider and institutional ownership as they pertain to the management of a crisis that is caused by an exogenous shock.

Do foreign institutions avoid investing in poorly CSR-performing firms?

We examine the impact of corporate social responsibility (CSR) on the investment decisions of foreign institutional investors. Using institutional investor holdings data domiciled in emerging markets, we find a positive and economically significant impact of firm CSR performance on foreign institutional ownership. We further document that independent foreign investors are affected by firm CSR performance, while gray foreign investors do not consider firm CSR performance when forming portfolios. Cross-sectional tests indicate a more potent positive impact of CSR on foreign institutional investor holdings for firms domiciled in countries with stronger disclosure and better governance. Moreover, investors domiciled in countries with common law consider firm CSR performance when forming portfolios. The results are robust to exogenous shocks, instrumental variable tests, and alternate specifications.

Foreign institutional ownership and Cross-Listing

Although foreign institutional ownership (FIO) is generally considered an important outcome of international cross-listings, most studies ignore the iterative nature of FIO—that is, FIO can also serve as a key determinant of cross-listings. Using a comprehensive dataset of international cross-listings of firms from 58 countries between 2001 and 2021, we examine the effect of FIO on firms’ cross-listing decision. Our results show that firms with a higher level of FIO before their cross-listing decision tend to have a significantly higher propensity to cross-list on foreign stock exchanges than firms with a lower level of FIO. Further analyses show that the positive association between FIO and cross-listings is weaker for firms with a better information environment, as evidenced by high analyst following, high media coverage, having a Big 4 auditor, and issuing management earnings forecasts. Additional evidence shows that FIO from countries with more developed institutions has a stronger effect on firms’ decision to cross-list. Taken together, our results are consistent with the argument that the presence of foreign institutional investors in firms signals their low information asymmetry and/or good corporate governance, thereby facilitating these firms’ international cross-listing decision.

Pengaruh Kepemilikan Asing dan Kepemilikan Institusional terhadap Biaya Modal Ekuitas: Efisiensi Investasi sebagai Variabel Mediasi

This study aims to investigate the effect of foreign ownership and institutional ownership on the cost of equity capital with investment efficiency as a mediating variable. This research was built with agency theory. The research method used in this study is a quantitative method. The population used in this study are all non-financial companies listed on the Indonesia Stock Exchange (IDX) during 2018-2020. This study uses secondary data in the form of financial reports and annual reports obtained from the Indonesia Stock Exchange and the company's official website. The number of samples as many as 130 companies for 3 years were selected using purposive sampling method. The results of this study found that foreign ownership and institutional ownership have a positive effect on the cost of equity capital. The results of this study also found that foreign ownership, institutional ownership, and investment efficiency have a negative effect on the cost of equity capital. Finally, the findings of this study are that investment efficiency mediates the effect of foreign ownership and institutional ownership on the cost of equity capital.

Pengaruh Corporate Social Responsibility terhadap Kinerja Keuangan Perusahaan dengan Tata Kelola Perusahaan sebagai Variabel Moderasi pada Perusahaan Manufaktur di Indonesia

This study discusses the effect of corporate social responsibility on company financial performance with corporate governance as a moderating variable in manufacturing companies in the consumer good industry sub-sector which are listed on the Indonesia Stock Exchange (IDX) for the 2017-2021 period. The research samples were 29 companies with a total of 145 data. The data analysis technique in this study was using moderated regression analysis (MRA). The results of the study show that corporate social responsibility (CSR) variables have no significant effect on financial performance. Corporate social responsibility (CSR) variable has no significant effect on financial performance which is moderated by corporate governance variables based on foreign ownership, institutional ownership, and managerial ownership. The corporate social responsibility (CSR) variable has a simultaneous or overall effect on financial performance with corporate governance as a moderating variable.

Pengaruh Struktur Kepemilikan terhadap Nilai Perusahaan dengan Kinerja Keuangan dan Kebijakan Hutang sebagai Variabel Intervening

Purpose: This study examines how ownership structure affects financial performance, with debt policy as an influencing factor. Methodology/Approach: This study adopted a quantitative research method. The OSIRIS database and indices, which are the outcomes of earlier investigations, served as secondary data sources for this study. Results/findings: The results of the analysis show that in Indonesia, (1) the ownership structure shown by insider ownership has no relationship with debt policy; (2) the ownership structure shown by insider ownership is related to financial performance; (3) debt policy does not affect firm value as a proxy for stock prices; (4) there is a positive effect of financial performance on firm value; and (5) there is no effect of ownership structure on firm value through debt policy and financial performance as intervening variables. Limitations: Ownership structure and ownership have no relationship with debt policy. Contribution: Indri Ayu Lestari (2022) The results of this study indicate that Foreign Institutional Ownership, Domestic Institutional Ownership, and Dividend Policy have a positive and significant effect on Firm Value. Foreign Institutional Ownership has a negative and significant effect on Dividend Policy. Domestic Institutional Ownership has no effect on Dividend Policy. Dividend Policy as an intervening variable is unable to mediate Foreign Institutional Ownership of Firm Value. Dividend Policy as an intervening variable is unable to mediate Domestic Institutional Ownership of Firm Value.

Foreign Institutional Ownership and Dividend Policy

Increasing institutional investors in manufacturing companies encourage companies to be more wise in making financial decisions, including dividend policy. Dividend policy related to profits earned by the company will be distributed to shareholders in the form of dividends or saved as retained earnings for reinvestment purposes. This study aims to examine the effect of foreign institutional ownership on dividend policy. This research was conducted on manufacturing companies listed on the Indonesia Stock Exchange (IDX) during 2013-2017, with a total of 466 observations. The Generalized Method of Moment (GMM) logistic regression and dynamic panel data estimation model was used in this study, with the dependent variable being dividend policy and the independent variable being ownership of foreign institutions. The study shows that foreign institutional ownership has a positive effect on dividend policy.

Konflik Kepentingan Dalam Kebijakan Dividen

Dividends are part of the profits earned by the company and are announced to shareholders. Company shares can be owned by national institutions, foreign institutions, and the public. This research aims to obtain empirical evidence of the influence of national institutional ownership, foreign institutions, public ownership and debt policy on dividend policy. There are 37 sample companies with 130 sample observations from 77 manufacturing companies in the consumer goods industry sector listed on the Indonesia Stock Exchange in 2015-2019. The sampling technique used was purposive sampling. The data was analyzed using multiple regression, and it was found that national institutional ownership and foreign institutional ownership had a negative effect on dividend policy. The results support the tax preference theory and the client effect theory, but do not support the bird in the hand theory. Meanwhile, public ownership and debt policy have no effect on dividend policy.
 Keywords : Dividend Policy; National Institutional Ownership; Foreign Institutional Ownership; Public Ownership; Debt Policy.

Impact of Ownership Structure and Business Diversifications on the Risk-Taking Behaviors of Insurance Companies in Vietnam

This study analyzes the impacts of ownership structure and business diversifications on the risk-taking behaviors of insurance companies in Vietnam. Foreign ownership and institutional ownership in the insurance sector are increasing significantly due to the privatization trend in Vietnam. Besides, business diversification allows insurance firms to maximize profits and reduce insolvency. Therefore, this study enriches the current literature because it is the first to examine how ownership and diversifications affect the risk-taking behaviors of insurance companies in Vietnam. We employ the Ordinary Least Squares, Fixed Effect Models, Random Effect Models, Generalized Least Squares, and dynamic system Generalized Methods of Moments to analyze 42 insurance companies from 2005 to 2020. Our findings indicate that business diversification increases the risk-taking behaviors of insurance firms. We also figure out a U-shaped relationship between institutional ownership and risk-taking behavior, with a turning point of 9.8%. This study also indicates an inverse U-shaped relationship between foreign ownership and insurers’ risk-taking behaviors, with a turning point of 20%. Thirdly, the interaction terms between ownership and diversification suggest the moderate role of business diversification in increasing the risk of insurance firms. Our findings align with agency theory, stakeholder theory, monitoring hypothesis, expropriation hypothesis, and prior literature. This study contributes practical implications for managers and policymakers to develop the insurance sector sustainably.

THE INFLUENCE OF FOREIGN OWNERSHIP, INSTITUTIONAL OWNERSHIP, INDEPENDENT COMMISSIONERS, AND FINANCIAL DISTRESS TO STOCK PRICE WITH ACCOUNTING CONSERVATISM AS A MODERATION VARIABLE

This study aims to analyze the influence of Foreign Ownership, Institutional Ownership, Independent Commissioners, and Financial Distress using the disclosure of Accounting Conservatism as a moderating variable. Data collection was obtained from the annual financial reports of Pharmacies listed on IDX 2017 – 2021 period, totaling 30 companies. The sampling technique used purposive sampling because the sample selection was based on the assessment of some of the characteristics of the sample members, which adjusted to the researcher's intentions. Using secondary data on the official IDX website (www.idx.co.id) and the official website of each company. The data analysis method used a special application of multiple linear regression analysis using Moderated Regression Analysis (MRA) with a quantitative approach. The study results show that foreign ownership and independent commissioners do not affect stock prices. Institutional ownership and financial distress have a significant effect on stock prices. Foreign ownership and independent commissioners influence share prices moderated by accounting conservatism. Institutional ownership and financial distress do not affect stock prices of pharmaceutical companies moderated by accounting conservatism. From the results of this study, it is hoped that pharmaceutical sub-sector companies will consider financial reports in carrying out their operating activities. In addition, investors can be used as a tool that provides additional information.