Institutional Ownership and Firm Performance: Evidence from Finland

33 Pages Posted: 12 Jul 2007

See all articles by Prasad S. Bhattacharya

Prasad S. Bhattacharya

Deakin University - Department of Economics; Research Associate, Centre for Applied Macroeconomic Analysis

Michael Graham

Deakin University - School of Accounting, Economics and Finance

Date Written: July 2007

Abstract

This paper investigates the relationship between different classes of institutional investors and firm performance. Using industry level data from Finland, which is characterized by various institutional investors who own multiple ownership stakes in different firms across a broad spectrum of industries, the paper exhibits two novelties. First, unlike previous studies which treated institutional investors as a monolithic group, we segment them in classes. Second, we recognize the joint determination of firm performance and institutional ownership. We account for this issue in the context of a system of equations, using three stage least squares methodology. The empirical results suggest a significant two-way feedback between firm performance and institutional equity ownership. However, this effect is not symmetric. We find that institutional investors with likely investment and business ties with firms have adverse (negative) effect on firm performance and the impact is very significant in comparison to the negative effect of firm performance on institutional ownership.

Keywords: Institutional ownership, Firm performance, Joint determination, Three stage least squares technique, System of equations, Two-way feedback

JEL Classification: G32, L20

Suggested Citation

Bhattacharya, Prasad S. and Graham, Michael, Institutional Ownership and Firm Performance: Evidence from Finland (July 2007). Available at SSRN: https://ssrn.com/abstract=1000092 or http://dx.doi.org/10.2139/ssrn.1000092

Prasad S. Bhattacharya (Contact Author)

Deakin University - Department of Economics ( email )

221 Burwood Highway
Burwood
Melbourne, Victoria 3125
Australia
61392446645 (Phone)
61392446283 (Fax)

HOME PAGE: http://www.deakin.edu.au/~prasbhat

Research Associate, Centre for Applied Macroeconomic Analysis ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

Michael Graham

Deakin University - School of Accounting, Economics and Finance ( email )

221 Burwood Highway
Burwood, Victoria 3215
Australia

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