Marching to the Beat of Different Drummers: The Influence of Institutional Owners on Competitive Actions

Abstract

This research extends agency theory by exploring the influence of diverse, and competing, principal interests on executive actions. Findings reveal that dedicated institutional investors, who hold concentrated portfolios over time, are positively associated with strategic competitive actions. Transient institutional investors, who hold diverse portfolios and trade frequently based on current earnings, are negatively associated with strategic and positively associated with tactical competitive actions. When these two classes of investors own appreciable shares of the same firm, they interact with each other to influence strategic and tactical competitive actions. These results have broad implications for executives, investors, and policymakers.

Keywords: institutional investors, ownership, competitive dynamics