Do Institutional Investors Unbind Firm Financial Constraints? Evidence from Emerging Markets

49 Pages Posted: 28 Sep 2016

See all articles by Roberto Alvarez

Roberto Alvarez

University of Chile - Department of Economics

Mauricio Jara-Bertin

University of Chile - Business School

Carlos Pombo

Universidad de los Andes, Colombia - School of Management

Date Written: September 21, 2016

Abstract

Using firm-level information for 11 large emerging economies for the 2003-2014 period, this article analyses the impact of firm investment ratio depending on the presence of institutional ownership and the effects of institutional investor heterogeneity on firm financial constraints. Results show that the presence of institutional ownership reduces firm cash flow sensitivity for restricted samples using size and the Kaplan and Zingales index. Investor heterogeneity regressions show that independent and foreign institutional investors reduce firm financial constraints explained by direct investor activism, lower monitoring costs and better corporate governance in particular across small and medium-size firms.

Keywords: nstitutional Investors, Corporate Governance, Financial Constraints, Emerging Markets,

JEL Classification: C20, G00, G20 and G30

Suggested Citation

Alvarez, Roberto and Jara-Bertin, Mauricio Alejandro and Pombo, Carlos, Do Institutional Investors Unbind Firm Financial Constraints? Evidence from Emerging Markets (September 21, 2016). Documento CEDE No. 2016-30, Available at SSRN: https://ssrn.com/abstract=2844345 or http://dx.doi.org/10.2139/ssrn.2844345

Roberto Alvarez (Contact Author)

University of Chile - Department of Economics ( email )

Diagonal Paraguay 257
Torre 26, Of. 1801
Santiago
Chile

Mauricio Alejandro Jara-Bertin

University of Chile - Business School ( email )

Diagonal Paraguay 257
Santiago, Chile
Chile

Carlos Pombo

Universidad de los Andes, Colombia - School of Management ( email )

Carrera Primera # 18A-12
Bogotá
Colombia
571-3394949 (Phone)

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