Distribution of Institutional Ownership and Corporate Firm Performance
15 Pages Posted: 18 Jun 2014
Date Written: December 3, 2008
We investigate the association between corporate firm performance and the level and stability of institutional ownership within a simultaneous equation model. Our main ownership stability measures include ownership persistence and the time-lengths over which investors hold non-zero shares or maintain their shareholding. We find that there is a positive relationship between firm performance and institutional ownership stability, accounting for the shareholding proportion. This relationship is robust to the employment of ownership turnover measures used in the literature and consistent with the view that stable institutional investors play an effective role in monitoring. When we disaggregate institutional investors into pressure-insensitive and pressure-sensitive categories, we find that stable shareholding of each group has a positive impact on performance, with the first group exerting a larger effect. The channels of the effect include, but are not limited to, decreased information asymmetry and increased incentive-based compensation.
Keywords: Institutional ownership, Monitoring, Firm performance
JEL Classification: G32
Suggested Citation: Suggested Citation