Presence Of Institutional Investors Research Articles

Institutional investors and dividend payments: evidence in the oil industry

Abstract The debate over the impacts of shareholder value orientation on corporate management has been more intense with the increasing participation of institutional investors in companies’ ownership structures. In this context, the purpose of this study is to evaluate the influence of institutional investors’ shareholding on the payment of dividends in the oil industry. A regression model was used, estimated with the Generalized Method of Moments. The results indicated that the distribution of dividends is related to the profitability and the leverage of the companies, in addition to the history of distribution to shareholders. In general, the presence of institutional investors did not influence the dividend distribution. However, we observed a large participation of these investors in the ownership structure of companies in the oil and gas sector—the average control of these agents was around 25% in the companies of the sample. This study contributes to the literature regarding the influence of institutional investors on the corporate decisions of nonfinancial companies, being original in the context of the oil industry.

Critical dimensions in the empirical measurement of common shareholding

The debate on common shareholding and its potential antitrust effects is currently on the agenda of major institutions worldwide. Discussions point to the need for improved empirical quantification of this phenomena. This work presents a flexible, multifaceted statistical framework for a set of new common shareholding indicators, covering both firm and investor perspectives, which can be adopted under different economic models. Many indices currently used in the literature fall within this framework as special cases. Aggregation at market level yields suitable industry-level indicators, providing policymakers with tools to evaluate the extent of common ownership in strategic markets. The indices are tested using firm-level data for European Mobile Network Operators in 2007–2021, showing a sector with concentrated ownership under large corporate groups, but also the presence of institutional investors with extensive ownership across the major firms.

Corporate governance, policy robustness and carbon neutrality in the digital economy: Insights from the natural resource exploitation sector

As the digital economy burgeons, its impact on energy consumption has become increasingly significant, particularly due to the extensive use of electronic machines and devices. This study delves into how corporate governance and its various dimensions influence carbon neutrality within organizations, with a specific focus on the Iron-Ore sector in China – a notable contributor to carbon emissions in the context of digital economic growth. The research also investigates the role of policy robustness in enhancing carbon neutrality, both as a direct influence and as a potential moderator in the relationship between corporate governance and carbon neutrality. Utilizing a panel data methodology, the study analyzes data from 103 organizations across a three-year span, from 2017 to 2019. The findings, derived from stepwise regression analysis, underscore the importance of factors such as environmental disclosure, policy robustness, the presence of institutional investors, corporate governance practices, and organizational size in steering towards carbon neutrality. These insights are crucial in understanding the intricate interplay between these variables and carbon neutrality in the Iron Ore sector, particularly under the umbrella of the expanding digital economy. The study concludes that organizations can significantly enhance their carbon neutrality – thereby positioning themselves as frontrunners in sustainable practices – through improved environmental disclosure, strengthened policy robustness, and a focus on robust corporate governance. This, in turn, contributes to global efforts in mitigating climate change, an imperative in the rapidly evolving digital economic landscape.

Determinants of IPO´s underpricing: A systematic review

In an Initial Public Offering (IPO) process, it is expected that there will be different share price valuations by professionals, due to market flaws, meaning information asymmetry among investors. For stockholders – who previously formed the corporate structure of the company – an IPO opens up possibilities of immediate gains, as they can purchase at prices lower than established by the structuring agent. On the other hand, underpricing is an indirect cost for the company, as, part of the offer is not collected. Identifying these determinants thus becomes relevant, as this information may be essential for defining the most appropriate share price. Consequently, the purpose of this study is to perform a bibliometric analysis (including the Zipf, Bradford and Lotka Laws), followed by a systematic review of papers analyzing this theme. This analysis uses the VOSviewer and Biblioshiny software packages. As a result, informational asymmetry is confirmed as the main theory clarifying the underpricing event. Noteworthy among the determinants are the reputations of the underwriter and share issuer, the presence of corporate governance mechanisms, and the offering size. Among the knowledge gaps opening up opportunities for further studies on this topic are: investigation of the phenomenon in companies in Latin America or comparatively in emerging countries worldwide, use of a behavioral approach to analyze investor motivations, and the presence of institutional investors as IPO inducers.

Social informedness and investor sentiment in the GameStop short squeeze.

We examine investor behavior on social media platforms related to the GameStop (GME) short squeeze in early 2021. Individual investors stimulated the stock market via Reddit social posts in the presence of institutional investors who bet against GME's success as short sellers. We analyzed r/WallStreetBets subreddit posts related to GME's trading patterns. We performed text-based sentiment analysis and compared the social informedness of posting users for GME trading on two social media platforms. The short squeeze occurred due to coordinated trading by individual investors, who discussed trading strategies on the platforms and drove collective social informedness-based trading behavior. Our findings suggest that the valence and number of submissions influenced GME's intraday transaction volumes and precursors for irrational trading behavior patterns to have emerged. We provide a theoretical interpretation of what occurred and call for tighter monitoring of social news platforms. We also encourage effort to create an in-depth understanding of the observed patterns and the linkages between them and the larger equity markets.

Institutional Investors' Response to Earnings Management Before Initial Public Offering in Poland

The aim of the paper is to analyse the association between the use of accrual-based and real earnings management practices before the company goes public and the decision of institutional investors on buying or refraining from buying shares offered in initial public offering (IPO). The sample consists of 258 Polish new stock companies over the period 2005-2020. We find that such companies refrain from massive earnings management in the pre-IPO period: both real and accrual-based. However, we find evidence that the presence of institutional investors in the IPO is related to earnings inflation (selling, general and administrative expenses). Our study contributes to the debate on the role of institutional ownership in the IPO process in Central and Eastern Europe.

Strategic trading by insiders in the presence of institutional investors

We examine how competition to trade on information with institutional traders affects insider trading. We find insiders complete their trades quicker when trading on the same side as institutions, and this effect is more pronounced when insiders are more informed. These findings support information-based models, suggesting that insiders accelerate their trading as institutional traders are likely to become privy to the private information and compete with them. We identify two possible channels by which institutional investors acquire private information: when insiders and institutional traders share the same broker, and when firms’ headquarters are in the same city as institutional traders.

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.

Risk Management Committee, Institutional Ownership, and Real Earnings Management

Objective –The study investigates whether firms with an independent risk management committee and the presence of institutional investors will deter management from engaging in real earnings management. Methodology – The data are derived from 360 firm-year observations collected over five years (2015-2019). To analyze the data, the Panel Corrected Standard Error is used. Findings– According to the results, the risk management committee and institutional investors reduce management's desire to manipulate reported earnings. Novelty – The presence of a risk management committee, according to this paper, reduces managers' discretion to dwell on real earnings manipulations. The study educates regulators on the importance of firms having a separate and active risk management committee to improve internal control and assist the board in monitoring management activities. Type of Paper: Empirical JEL Classification: M40; M41; M49. Keywords: Earnings Management, Risk Management Committee, Institutional, Nigeria

The impact of gender-diverse board and institutional investors on accruals management

Institutional investors are large proponents of increasing gender diversity on firms’ boards. However, it is an open question whether firms with institutional investors who favor monitoring, benefit from increasing the diversity of their boards. The objective of this paper is to investigate this issue by analyzing how the presence of institutional investors who favor monitoring, and a gender-diverse board, impact one aspect of governance, i.e., firms’ earnings management. In our empirical investigation, we perform fixed-effect panel regressions on a sample of 5668​ firm-years over the period 2007 to 2014. Building on the literature that finds that independent institutional investors with long-term investment and concentrated ownership (ILTICO) are more likely to favor monitoring, we first confirm that both and ILTICO and board gender diversity reduce abnormal accruals, our measure of earnings management. In particular, we confirm a significant negative relation between each of these strong governance mechanisms and the level of abnormal accruals. However, we provide robust evidence that the combined effect of a gender-diverse board and ILTICO is an increase in accruals-based earnings management. By further investigating the combined effect using a GMM model, we attribute the increase in earnings management to the fact that these two governance mechanisms are substitutes. In other words, they do not constitute an efficient bundle. The results are robust after controlling for holdings, board, CEO, auditor and financial characteristics; using different models of abnormal accruals; and using alternative definitions of board gender diversity. Our results highlight the need to consider whether governance factors are complements or substitutes when combining them.

Sentiment, Mispricing and Excess Volatility in Presence of Institutional Investors

Sentiment, Mispricing and Excess Volatility in Presence of Institutional Investors

Institutional investors and company market value – the case of Poland

Institutional investors have contributed to the development of capital markets in transition economies, including Poland’s. Since they leverage detailed fundamental analysis and actively seek the highest possible returns on investments, their decisions are expected to be accurate and are observed carefully, often treated as signals for other investors to follow. As a result, the market valuations of target companies are expected to increase. The objective of this paper is to determine whether the presence of institutional investors in the ownership structure coexists with a higher market valuation of a listed company. The estimation of a panel model with fixed effects (681 companies listed on the Warsaw Stock Exchange, WSE, between 2014 and 2018) indicates that a higher share of institutional investors in the ownership structure coexists with a higher Price to Book Value (PB).

Macroprudential Policy and the Role of Institutional Investors in Housing Markets

Since the onset of the Global Financial Crisis, the presence of institutional investors in housing markets has steadily increased over time. Real estate funds (REIFs) and other housing investment firms leverage large-scale buy-to-rent investments in real estate assets that enable them to set prices in rental housing markets. A significant fraction of this funding is being provided in the form of non-bank lending (i.e., lending that is not subject to regulatory LTV limits). I develop a quantitative two-sector DSGE model that incorporates the main features of the real estate fund industry in the current context to study the effectiveness of dynamic LTV ratios as a macroprudential tool. Despite the comparatively low fraction of total property and debt held by REIFs, optimized LTV rules limiting the borrowing capacity of such funds are more effective in smoothing property prices, credit and business cycles than those affecting (indebted) households – borrowing limit. This finding is remarkably robust across alternative calibrations (of key parameters) and specifications of the model. The underlying reason behind such an important and unexpectedly robust finding relates to the strong interconnectedness of REIFs with various sectors of the economy. JEL Classification: E44, G23, G28

Macroprudential Policy and the Role of Institutional Investors in Housing Markets

Since the onset of the Global Financial Crisis, the presence of institutional investors in housing markets has steadily increased over time. Real estate funds (REIFs) and other housing investment firms leverage large-scale buy-to-rent investments in real estate assets that enable them to set prices in rental housing markets. A significant fraction of this funding is being provided in the form of non-bank lending (i.e., lending that is not subject to regulatory LTV limits). I develop a quantitative two-sector DSGE model that incorporates the main features of the real estate fund industry in the current context to study the effectiveness of dynamic LTV ratios as a macroprudential tool. Despite the comparatively low fraction of total property and debt held by REIFs, optimized LTV rules limiting the borrowing capacity of such funds are more effective in smoothing property prices, credit and business cycles than those affecting (indebted) households – borrowing limit. This finding is remarkably robust across alternative calibrations (of key parameters) and specifications of the model. The underlying reason behind such an important and unexpectedly robust finding relates to the strong interconnectedness of REIFs with various sectors of the economy.

Underwriter reputation and IPO underpricing: The role of institutional investors in the Chinese growth enterprise market

This paper investigates the effects of underwriter reputation on initial public offering (IPO) underpricing in the Chinese Growth Enterprise Market, in light of the conflicting evidence in the literature on IPO underpricing. Using data during the post global financial crisis period, we find that IPO firms with prestigious underwriters have lower market-adjusted initial returns on average. We further find that prestigious underwriters reduce IPO underpricing by minimizing the time gap between the offering and listing, choosing high-quality firms to underwrite, and reducing information asymmetry between issuers and investors. In the presence of institutional investors, however, we find that more underpricing occurs, as these investors tend to obtain access to IPO shares at a higher price discount via private placements. This new finding suggests that the institutional investors have a role to play in the case of high under-pricing, which partly gets corrected via underwriter reputation.

The Effect of Green Innovation and Ownership Structure on Corporate Financial Performance

The study aimed to determine the effect of green innovation implementation and ownership structure on corporate financial performance. The variables consisted of corporate financial performance, green innovation, managerial ownership, and institutional ownership. The study used a quantitative causality approach. The population of this study is a mining sector company listed on the Indonesia Stock Exchange. The sample was determined with the following criteria: (a) mining sector companies, (b) submit annual reports to IDX in 2020, and (c) not delisting in 2020. The data used was secondary data of the company's annual report and the PROPER awarding data from the Ministry of Environment. Data analysis techniques used multiple Linear Regression with Stata 14.2 software. The results showed that green innovation and managerial ownership did not affect corporate financial performance, while institutional ownership positively affected corporate financial performance. The managerial implication of this research is that in the short term, the presence of institutional investors can improve corporate financial performance.

The Ownership Structure Influence on the Dividend Distribution Policy: The Case of Listed French Family Firms

The usefulness and justification of corporate dividend distribution policies are among the most controversial topics in financial theory. This research aims to shed light on this issue by studying the case of French listed family firms. These companies have a specific governance structure that influences the dividend distribution policy. We examined the impact of the family ownership structure on dividend distribution policy and present empirical study results for a sample of listed French family companies. We explain the dividend distribution policy through the family shareholding structure and the presence of institutional investors and their possible influence. The theoretical framework is the agency relationship. The results show that family ownership positively affects dividend distribution; however, institutional investors have a negative influence.

The effects of policy uncertainty on bank loan loss provisions

Uncertainty around fiscal policy has the potential to alter the lending behavior, investment, and employment of bank holding companies, all of which affect a bank's bottom line. Management forecasts of loan losses exhibit greater dispersion during these periods. However, this uncertainty provides management greater flexibility in estimating loan loss provisions to achieve firm objectives. Using a sample of 2483 U.S. bank holding companies, we demonstrate that the positive relationship between economic policy uncertainty and discretionary loan loss provisions is contingent on BHC characteristics and stakeholder oversight. The presence of institutional investors, increased analyst following, and dividend issuance attenuates the positive relationship between policy uncertainty and discretionary loan loss provisions. We also find that increased regulatory scrutiny weakens this relationship. Our findings indicate policy uncertainty provides cover to managements' inaccurate adjustments of loan loss provisions, but management is less willing to make such adjustments when internal and external stakeholders are informed.

Interest on Equity versus Dividends: the Role of Shareholder Identity on Corporate Tax Avoidance

Most Brazilian public corporations have controlling majority shareholders. Meanwhile, the Brazilian tax code regarding payout income treats differently different kinds of shareholders depending upon their legal nature. Therefore, depending upon the controlling shareholder’s identity, the payout policy of Brazilian firms may be suboptimal for minority shareholders. We investigate this agency conflict in a sample of 404 Brazilian firms over 12 years. Using a novel measure for how much firms are exploiting the tax advantages of Interest on Equity – IOE (IOE/IOE*), we find evidence that the identity of the controlling shareholder influence both the way firms distribute profits (cash dividends or IOE), the propensity, and the amount paid out as IOE. The presence of institutional investors and firm listing in the special corporate governance segment in the stock exchange Novo Mercado significantly increase cash payouts in the form of IOE vis-a-vis cash dividends, reducing overall taxation (firm-level plus investor level) for the average firm. These results are robust to several model specifications and endogeneity tests. Overall, our evidence suggests that shareholders’ identity influences payout policy through the taxation channel.

Institutional investor distraction and earnings management

In this study, we explore the implications of institutional investor distraction for earnings management. Our identification approach relies on a firm-level measure of institutional investor distraction that exploits exogenous attention-grabbing shocks to unrelated parts of institutional investors' portfolios. We find that firms with distracted institutional shareholders engage more in both accrual-based and real earnings management. Further analyses show that the association between investor distraction and earnings management is stronger in firms with low analyst coverage and weak board monitoring, as well as in firms where managing earnings upward allows meeting or just beating their earnings target. Collectively, our results suggest that managers exploit the loosening in monitoring intensity resulting from investor distraction by engaging in earnings management. Even in the presence of institutional investors with superior monitoring abilities, limited attention may induce insufficient monitoring of earnings management practices.