The Effect of Institutional Ownership on Firms’ Thrust to Compete

45 Pages Posted: 12 Feb 2018 Last revised: 1 Oct 2018

Panayiotis C. Andreou

Cyprus University of Technology

Franco Fiordelisi

University of Rome III - Department of Business Studies; Middlesex University - Business School

Terry Harris

Durham University Business School

Dennis Philip

Durham University Business School

Date Written: February 1, 2018

Abstract

This paper develops a measure of a firm’s thrust to compete, which captures the relative importance of corporate values that propel a firm to achieve superior financial performance by emphasizing organizational effectiveness, fast response to external information, and enhanced competitiveness. Using this measure, we provide causal evidence that institutional investors’ preferences significantly affect firms’ thrust to compete. Particularly, we find that transient institutional ownership intensifies firms’ thrust to compete, while dedicated institutional ownership lessens it. Further, we demonstrate that as firms intensify their thrust to compete, they become more susceptible to future stock price crash risk, a phenomenon observed solely among those firms with a high proportion of transient, and a low proportion of dedicated, institutional ownership. Our findings have policy implications, since they identify thrust to compete as a channel through which institutional investors intervene to affect firms’ operating philosophy and decision-making. While this is true for both transient and dedicated institutional investors, we show that interventions from transient investors happen at the expense of shareholder value (i.e. increased crash risk).

Keywords: Thrust to compete; Institutional ownership; Transient investors; Crash risk; Firm value

JEL Classification: G20, G32, G34, G38, M48

Suggested Citation

Andreou, Panayiotis C. and Fiordelisi, Franco and Harris, Terry and Philip, Dennis, The Effect of Institutional Ownership on Firms’ Thrust to Compete (February 1, 2018). Available at SSRN: https://ssrn.com/abstract=3120677 or http://dx.doi.org/10.2139/ssrn.3120677

Panayiotis C. Andreou (Contact Author)

Cyprus University of Technology ( email )

School Of Management and Economics
P.O. Box 50329
Lemesos, 3036
Cyprus

HOME PAGE: http://www.pandreou.com

Franco Fiordelisi

University of Rome III - Department of Business Studies ( email )

Via Silvio D'Amico 77
Via Silvio D'Amico 77
Rome, RM 00145
Italy

HOME PAGE: http://host.uniroma3.it/docenti/fiordelisi/?home

Middlesex University - Business School ( email )

The Burroughs
London, NW4 4BT
United Kingdom

Terry Harris

Durham University Business School ( email )

Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom

Dennis Philip

Durham University Business School ( email )

Department of Economics and Finance
Mill Hill Lane
Durham, DH1 3LB
United Kingdom

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