Institutional Ownership and Firms’ Thrust to Compete
50 Pages Posted: 12 Feb 2018 Last revised: 11 Sep 2020
Date Written: September 10, 2020
This paper provides evidence on the impact of different types of institutional investors on a firm’s thrust to compete. A firm’s thrust to compete, as an attribute of corporate culture, captures the relative importance of corporate values that push a firm to achieve shareholder value in the short and immediate term by emphasizing goal achievement, fast response to external information, and enhanced competitiveness. We find that greater ownership by transient investors results in firms intensifying their thrust to compete, suggesting that firms respond to their preferences and competitive pressures for achieving short-term value creation. By contrast, we find that firms with greater ownership by non-transient institutional investors reduce their thrust to compete. Non-transient investors are incentivized to place their emphasis on long-term firm value, over short-term gains. Our findings reveal that the composition of institutional ownership influences the organizational culture of firms in a non-homogeneous way. The findings provide significant empirical insights to the ongoing debate on the implications arising from the behind‐the‐scenes engagement of institutional investors with management.
Keywords: Thrust to compete; Corporate culture; Competing values framework, Institutional ownership; Transient investors; Dedicated investors; Quasi-Indexers
JEL Classification: G20, G32, G34, G38, M48
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