Institutional Ownership and Investment by Private Companies

Abstract

We examine the impact of VC and non-VC institutional shareholders on the investment activity and external financing of established private companies. Our sample of institutional owners is derived from company share registers and includes both controlling and minority ownership stakes. Institutions give rise to higher levels of investment in intangible assets—but not in tangible assets—and higher funding via external equity. These results apply even if institutions have a small non-controlling stake, suggesting that institutions promote investment by alleviating funding constraints. Over 40% of our sample firms have ownership by non-VC institutions acting independently of VC. Such institutions have positive effects on firm investment and external equity, though smaller than those of VC investors.

Keywords: corporate investment, funding constraints, private companies, private equity, investing institutions

JEL Classification: G24, G23, G32