When Fundamental Investors Relieve Market Pressures on Management: Evidence from France

29 Pages Posted: 19 Jul 2016 Last revised: 11 Sep 2016

See all articles by Alexandre Garel

Alexandre Garel

Auckland University of Technology; Labex ReFi

Jean-Florent Rerolle

Sciences Po Paris; KPMG Corporate Finance

Date Written: July 15, 2016

Abstract

In this paper, using an original database of investors operating on the French stock market, we investigate the real effect of ownership structure. We call fundamental investor an investor who, on average, holds on average his shares for at least two years, is in the top quartile of a firm ownership, and has an active allocation strategy. We show that firms with greater fundamental investor ownership experience lower market reactions to earnings surprises and lower mispricing. Moreover, we show that a long/short portfolio on fundamental ownership generates significant positive shareholder value over time. Our findings are consistent with greater fundamental ownership generating shareholder value by allowing management to focus on the long-term drivers of firm intrinsic value rather than on market sentiment. We finally look at the determinants of the presence of fundamental investors.

Keywords: Fundamental investors, dedicated investors, long-term investors, mispricing, intrinsic value

JEL Classification: G23, G31, G32, G35

Suggested Citation

Garel, Alexandre and Rerolle, Jean-Florent, When Fundamental Investors Relieve Market Pressures on Management: Evidence from France (July 15, 2016). Available at SSRN: https://ssrn.com/abstract=2810257 or http://dx.doi.org/10.2139/ssrn.2810257

Alexandre Garel (Contact Author)

Auckland University of Technology ( email )

Auckland, 1142
New Zealand

Labex ReFi ( email )

79 avenue de la République
Paris, 75011
France

Jean-Florent Rerolle

Sciences Po Paris ( email )

28 rue des Saints Pères
Paris, 75007
France

HOME PAGE: http://Www.rerolle.eu

KPMG Corporate Finance ( email )

France

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