Increase In Institutional Ownership Research Articles

Stock liquidity and investment efficiency: Evidence from the split-share structure reform in China

Using China’s split-share structure reform, we examined the effect of stock liquidity on investment efficiency. We found that enhanced stock liquidity results in more efficient investments and the effect is much more pronounced for under-investing firms than for over-investing firms. Additionally, we found that an increase in institutional ownership and price efficiency generated by a change in stock liquidity is positively associated with a reduction in under-investment. Thus, these findings suggest that under-investing firms with liquid stocks have more informed investors and face greater pressure to select an optimal investment level in the post-reform period.

The Relationship between Changes in Corporate Governance Characteristics and Intellectual Capital

The primary goal of this study was to investigate the effects of changes in corporate governance elements on a company’s valuable resources (such as intellectual capital and its components). Previous studies have examined the impacts of some corporate governance characteristics on intellectual capital performance as a whole and they have produced inconclusive and different results. This paper examines the effects of some corporate governance characteristics (i.e., the change in CEO, the evolution of auditor, the change in board independence, and the change in institutional ownership) on intellectual capital and its components (i.e., capital employed, human capital, and structural capital). This research is based on a quantitative study and the selected sample contains 1170 observations from 220 companies listed on the Middle East Stock Exchange from 2011 to 2018. The research findings show a positive and significant relationship between an increase in institutional ownership and intellectual capital and its two components (human capital and structural capital). The results support the relationship between a change in auditor and intellectual capital and human capital efficiency. Further, a positive and significant association was found between an increase in board independence and human capital. However, no relationship was found between a change of CEO and intellectual capital or any of its components. This study extends the research field of corporate governance by studying the effects of changes in corporate governance characteristics on intellectual capital for the first time. Given the significant role of intellectual capital in the performance of firms, this study provides essential information to organisations’ decision makers.

The impact of central environmental inspection on institutional ownership: Evidence from Chinese listed firms

As a major innovation of China's environmental regulatory framework, the central environmental inspection (CEI) policy has a significant effect on ecology and the economy, but research on its effects on institutional investors and listed firms is scarce. This paper uses panel data from China's A-share listed firms to investigate the impact of CEI on institutional investors' ownership in listed firms. We use the staggered difference-in-differences (DID) method and find that this impact is significant and positive. We also find that institutional investors tend to increase their holdings in firms that are positively affected by CEI in terms of ecological responsibility and total factor productivity. After dividing the sample and performing regression analysis, we find that only listed firms belonging to heavily polluting industries and non-state-owned enterprises experience an increase in institutional ownership after CEI. In addition, firms subject to more institutional investor attention receive more investment after CEI. Our results demonstrate that CEI does not cause institutional investors to invest less in listed firms in polluting industries and does not make these firms worse off, which sheds light on the economic impact of CEI.

Examining the Relationship between Good Corporate Governance and Company Size on Stock Prices in Manufacturing Companies Listed on the Indonesia Stock Exchange

This study aims to determine the impact of excellent corporate governance ownership structure on the firm size on stock prices in manufacturing companies listed on the Indonesia Stock Exchange, both simultaneously and partially. According to the findings, good corporate governance, as evaluated by the board of directors and the commissioners, negatively and substantially impacts stock prices. In contrast, the audit committee has a positive and significant impact on stock prices. The natural logarithm of total assets, which measures the size of a company, has a favorable effect on stock prices. The more the company's total investments in the 52 issuers, the higher the share price. Managerial ownership has a positive but not statistically significant effect on stock prices, whereas institutional ownership has a negative and statistically significant impact. The increase in institutional ownership will cause stock prices to fall.

The Power of Numbers: Base‐Ten Threshold Effects in Reported Revenue*

ABSTRACTWe show that managers have a propensity to disproportionately report total revenues just above base‐ten thresholds (e.g., 10 million, 30 million, 1 billion) and examine motives for and consequences of this behavior. Focusing on base‐ten thresholds in revenues is important because, despite being unusually prevalent in revenue targets set in executive compensation contracts, analyst forecasts, and management forecasts, they have not been previously explored. We also show that pressure to beat these targets provides one explanation for the base‐ten bias in reported revenues. However, these incentive effects do not offer a complete explanation because base‐ten threshold‐beating is observed even in the absence of these explicit targets. We further find that when firms beat a base‐ten threshold for the first time, they experience increases in news coverage, institutional ownership, liquidity, and analyst following, even after controlling for whether they have beaten other common benchmarks. These results suggest that managers also beat base‐ten thresholds in order to increase their firms' overall visibility. Overall, we show that a preference for base‐ten numbers, which have no inherent economic meaning, has a measurable effect on the actions of market participants. These results open the door to a new range of managerial targets previously unexplored.

CSR contracting and performance-induced CEO turnover

Motivated by the rise of linking CEO compensation to corporate social responsibility (hereafter, CSR contracting), we examine the impact of CSR contracting on CEO performance-induced turnover. Using a sample of S&P 500 firms with hand collected information on the use and substantiveness of CSR contracting from proxy statements between 2004 and 2018, we find that CSR contracting firms are associated with reduced turnover–performance sensitivity. Furthermore, CSR contracting's effects hold regardless of CEO power, although the impact appears to be concentrated in observations both during and after the global financial crisis, in firms with superior CSR ratings, and in those managed by more able CEOs. Channel tests reveal that non-transient institutional ownership and shareholder voting support increase following CSR contracting. Jointly, these patterns are consistent with the notion that CSR contracting helps signal a firm's long-term strategies, attract investors for whom social returns are an issue, and build trust between a firm and its investors, thereby reducing the importance of short-term financial performance related to CEO dismissal decisions.

Mediating Effect of Earnings Management on Financial Performance: The Importance of Good Corporate Governance

Purpose: This study investigates the effect of corporate governance on financial performance by taking into account the mediating effect of earnings management. Design: By using a structural equation modeling and partial least squares approach and a sample of listed banks in Indonesia observed between 2010 and 2015, this research proves that good corporate governance has a significant effect on earnings management and, in turn, that earnings management has an adverse impact on a company’s financial performance. Findings: An increase in managerial and institutional ownership leads to a decrease in earnings management, which can improve a company’s financial performance. Originality: This research shows that by applying good corporate governance mechanisms, a company can avoid agency conflicts, minimize earnings manipulation by managers, and obtain reliable company performance valuations.

Long‐term capital gains taxes and stock prices: Evidence from India

AbstractPrior studies of the relevance of long‐term capital gains for stock prices rely on the evidence from the 1997 tax cut in the United States. The key component of the tax‐sensitive ownership in these studies is individual ownership; its average is reported to be as high as 66.7%. The sharp increase in institutional ownership over the last two decades to more than 80% and the concomitant decline in individual ownership raises the question of whether taxes on long‐term capital gains are still relevant for stock prices. We examine stock price responses to the 2018 increase in the long‐term capital gains tax rate in India, a market where individual stock ownership is only 18.5%. Overall, the evidence provides strong support for the continued relevance of long‐term capital gains taxes for stock prices despite individual investors accounting for only a small portion of the stock ownership.

Institutional ownership and violations of mandatory CSR regulation

India is one of the very few national jurisdictions to introduce a regulation mandating spending on corporate social responsibility (CSR) activities. Although the directive has increased CSR spending significantly, it has experienced a widespread noncompliance. This paper examines the effect of institutional ownership on the likelihood of violations of the mandatory CSR regulation. Using a sample of over 4000 firm-year observations, we find that an increase in institutional ownership significantly increases firms’ compliance with the mandatory CSR expenditure requirement. This result is robust to the alternative definitions of mandatory CSR violations, alternative model estimation approaches, addressing endogeneity and reverse causality biases and controlling for firms’ group affiliation, and ownership of foreign investors and government.

Institutional ownership and REIT acquisitions

ABSTRACT We examine the relationship between institutional ownership and Real Estate Investment Trust (REIT) acquisitions. We find that REITs with relatively higher levels of pre-event institutional ownership are more likely to partake in acquisitions. We additionally find that levels of institutional ownership significantly increase post-acquisitions even after controlling for other relevant factors. This increase is driven by longer-term and passive institutional investors. Further, we find positive influences from the increase in institutional ownership on both market and accounting performance, however, this is driven by increases in short-term and active institutional investor levels. Collectively, our results suggest a significant influence by institutional investment on REIT acquisition decisions that has a significant effect on shareholder wealth.

Investor horizon and managerial short-termism

This paper shows that long-term shareholders embed horizon incentives in executive compensation contracts as a mechanism to promote long-term oriented managerial behavior. Increase in long-term institutional ownership leads to longer equity vesting periods measured by CEO pay duration. Further, CEO pay duration decreases following hedge-fund activism that is often argued to be associated with short-term investment horizon. To establish causality, we use institutional mergers as an exogenous change in institutional investor horizon, and to address reverse causality, we use the indexing behavior of institutions. We support our findings by providing evidence that long-term institutional ownership is associated with long-term oriented shareholder proposals. Overall, CEO pay duration is a potential mechanism for institutional investors to align managerial horizon with their investment horizon, and ultimately to influence corporate behavior.

Sustainability efforts, index recognition, and stock performance

We examine the long-term performance of stocks appearing in the Dow Jones Sustainability Index North America. We find that sustainability stocks exhibit abnormal returns for 12–30 months after the index listing, while those stocks generate no excess returns before the index listing. Moreover, sustainability stocks experience an increase in institutional ownership after the index listing. However, we find no evidence that short sellers increase their position to exploit a possible overpricing for sustainability stocks. Overall, our analysis suggests that sustainability efforts translate into a permanent increase in demand for stocks, leading to the superior performance.

Neglected Peers in Merger Valuations

Using merger documents filed with the SEC from 1994 to 2018, we show that being selected by investment banks as “comparable peers” are more than twice as likely to become a target themselves in the future compared to control firms matched for industry and size. They also experience an increase in analyst coverage and institutional ownership. Investment banks’ informational advantage as well as their ability to facilitate future takeover transactions, appear to contribute to peers’ significantly higher probability of becoming targets. Investors and equity analysts largely ignore the rich information contained in merger filings. A portfolio that longs peers and shorts non-peers matched for industry and size earns up to 15.6% alpha in the subsequent year. Alphas come entirely from the long-leg, which cannot be explained by short-sale constraints.

Does the investment horizon of institutional investors matter for stock liquidity?

This paper examines the role of the investment horizon of institutional investors on stock liquidity of firms. We show that an increase in long-term institutional ownership is negatively associated with firm liquidity, while an increase in short-term ownership is positively related to a firm's stock liquidity. We identify the ownership-liquidity relationship by examining two major channels: the trading activity channel and the informational friction channel. Long-term investors reduce stock liquidity through low frequency trading and access to value-enhancing and private information, which induces adverse selection bias. In contrast, short-term investors improve liquidity through trading activity and competition with other investors, which lowers transaction costs. Our findings further suggest that the effects of an increase in long-term (short-term) institutional investors on liquidity weaken (strengthen) when a firm has more publicly available information. Finally, we show that the positive impact of an increase in long-term ownership on valuation is more pronounced for firms with higher liquidity and the valuation effect is persistent.

Sustainability Efforts, Index Recognition, and Stock Performance

We examine the long-term performance of stocks appearing in the Dow Jones Sustainability Index North America. We find that sustainability stocks exhibit abnormal returns for 12 to 30 months after the index listing while those stocks generate no excess returns before the index listing. Moreover, sustainability stocks experience an increase in institutional ownership after the index listing. However, we find no evidence that short sellers increase their position to exploit a possible overpricing for sustainability stocks. Overall, our analysis suggests that sustainability efforts translate into a permanent increase in demand for stocks, leading to the superior performance.

What is the effect of an additional dollar of IPO proceeds?

We examine the effect of IPO proceeds on post-IPO liquidity and market monitoring. To do so we exploit variation in the amount of proceeds raised that is unrelated to firm size and manager decisions using an instrumental variable approach. We find that marginal increases in IPO proceeds lead to large increases in liquidity, analyst coverage, and institutional ownership in the first two years a firm is public. Increases in IPO proceeds also lead to more frequent follow-on offerings and longer survival as a public firm. We find evidence that immediate shocks to ownership dispersion represent one plausible channel through which changes in IPO proceeds affect long-run liquidity and market monitoring. Overall, our findings support the theoretical liquidity and market quality benefits associated with reductions in ownership concentration.

Corporate Governance Reforms under the Abenomics : the Economic Consequences of Two Codes

Corporate governance reform has been one of the central issues in the third arrow of the Abe administration's economic revival program. The Japanese Stewardship Code was introduced in 2014, followed by the Corporate Governance Code in 2015. This study quantifies how the reform changed the corporate governance of Japanese firms. First, we examine the changes in institutional ownership, cross-holdings and board structure following the reforms. Then, we study whether changes in ownership structure and board structure affect firm behavior and performance. We find that the introduction of the Stewardship Code is associated with more institutional ownership especially in mid-sized firms. Firms with few outside directors increased the number of outside directors to follow the Corporate Governance Code. However, the increase in institutional ownership and outside directors did not promote risk taking behavior or improve firm performance.

Pengaruh Corporate Governance terhadap Biaya Agensi pada Perusahaan Tekstil dan Garment yang Terdaftar Di Bursa Efek Indonesia (BEI) Periode 2014 – 2018

This study aims to determine the effect of managerial ownership on agency costs in textile companies listed on the Indonesia Stock Exchange (BEI) for the 2014-2018 period. This is to determine the effect of institutional ownership on agency costs in textile companies listed on the Indonesia Stock Exchange (BEI) for the 2014-2018 period. This research is quantitative research. The method used by the writer in analyzing the data in this research is descriptive statistical analysis. In this study, researchers used secondary data in the form of company records on financial reports related to this study. The results of this study are multiple linear regression equations showing each independent variable to the dependent variable. The value of α is -0.104, which indicates that agency costs decrease by -0.104 percent if managerial ownership (X1) and institutional ownership (X2) are equal to zero. The value of β1 is 0.346 which indicates that for every 1% increase in managerial ownership, agency costs will decrease by 0.346% assuming the other variables are constant. The value of β2 is 0.267 which indicates that for every 1% increase in institutional ownership, agency costs will decrease by 0.267%, assuming the other variables are constant.

Institutional Ownership and Mergers and Acquisitions

We study the role played by institutional investors in the U.S. takeover market. An increase in a firm's institutional ownership raises its likelihood of receiving a takeover bid, mainly driven by stock offers. We support the causal relationship using Russell index reconstitution as the instrument. Our additional analysis shows that institutional investors help mitigate the information asymmetry between bidders and targets, allowing target firms to accept a larger fraction of stock payment. The positive relationship between a target's institutional ownership and a stock-based offer is pronounced when information asymmetry associated with the bidder and the transaction is higher, suggesting that institutional investors act as an information conduit between the two parties. Moreover, the positive impact is stronger when the bidder's shares -- the currency of transactions -- are correctly priced. Our evidence suggests that institutional investors play an important role in alleviating information asymmetry in takeover transactions and assessing the associated values.

The effect of institutional ownership on listed companies’ tax avoidance strategies

ABSTRACT The percentage of institutional ownership in China has increased gradually. Does this characteristic of Chinese institutional investors affect their participation in corporate governance, which in turn, affects corporate tax avoidance activities? We take 1108 listed Chinese companies from 2009 to 2017 to study this issue. The paper uses average daily total market capitalization as an instrumental variable to test the endogeneity problems. We run a quantile regression (QR) at the median level as robustness testing to overcome the fat tail of financial data. Then, the shareholding ratio of majority shareholders is introduced to verify that ownership concentration is one of the mechanisms through which institutional shareholders influence corporate tax avoidance decisions. The findings are as follows: The proportion of institutional investors’ shareholdings is positively related to the degree of enterprise tax avoidance. The increase in institutional investors’ shareholdings is likely to promote corporate tax avoidance. When the level of ownership concentration is low, the increase in institutional ownership can play a greater role in promoting tax avoidance.