Abstract

https://ssrn.com/abstract=2015514
 


 



Does Institutional Ownership Promote the Transformation of Underperforming Firms?


Grigori Erenburg


University of Western Ontario - King's University College

Janet Kiholm Smith


Claremont McKenna College - Robert Day School of Economics and Finance

Richard L. Smith


University of California, Riverside - Anderson Graduate School of Management

July 15, 2013

Claremont McKenna College Robert Day School of Economics and Finance Research Paper No. 2012-02

Abstract:     
We focus on firms that chronically underperform and evaluate ways that institutional investors can facilitate the redeployment of assets to higher valued uses. Our evidence indicates that institutional holdings affect firm survival. Increases in institutional holdings are associated with subsequent acquisition and decreases are associated with subsequent failure. For surviving underperformers, institutional holdings and changes are associated with improved performance, but long-run abnormal returns are still negative and Tobin’s Q is still low. Our findings indicate that this association between holdings and improved performance is not causal. Rather, it can be explained by “flight to quality” combined with persistence of financial performance, including persistence of abnormal returns for underperformers. The evidence casts doubt on interpretations of some previous findings of positive relationships between holdings and performance.

Number of Pages in PDF File: 41

Keywords: institutional investors, monitoring, corporate governance, underperforming firms, acquisition, bankruptcy, distressed firms

JEL Classification: G3, L2, G20, G33, G34


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Date posted: March 5, 2012 ; Last revised: August 11, 2013

Suggested Citation

Erenburg, Grigori and Smith, Janet Kiholm and Smith, Richard L., Does Institutional Ownership Promote the Transformation of Underperforming Firms? (July 15, 2013). Claremont McKenna College Robert Day School of Economics and Finance Research Paper No. 2012-02. Available at SSRN: https://ssrn.com/abstract=2015514 or http://dx.doi.org/10.2139/ssrn.2015514

Contact Information

Grigori Erenburg
University of Western Ontario - King's University College ( email )
266 Epworth Avenue
London, Ontario N6A 2M3
Canada
Janet Kiholm Smith
Claremont McKenna College - Robert Day School of Economics and Finance ( email )
500 E. Ninth St.
Claremont, CA 91711-6420
United States
909-607-3276 (Phone)

Richard L. Smith (Contact Author)
University of California, Riverside - Anderson Graduate School of Management ( email )
Riverside, CA 92521
United States
951-827-3554 (Phone)
HOME PAGE: http://www.agsm.ucr.edu/
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