Institutional Ownership and Investment by Private Companies

59 Pages Posted: 6 Feb 2022 Last revised: 6 Feb 2024

See all articles by Seth Armitage

Seth Armitage

University of Edinburgh - Accounting and Finance

Ronan Gallagher

University of Edinburgh - Edinburgh Business School

Jiaman Xu

University of Edinburgh - Accounting and Finance Group

Date Written: January 01, 2024

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

Suggested Citation

Armitage, Seth and Gallagher, Ronan and Xu, Jiaman, Institutional Ownership and Investment by Private Companies (January 01, 2024). Available at SSRN: https://ssrn.com/abstract=3985039 or http://dx.doi.org/10.2139/ssrn.3985039

Seth Armitage (Contact Author)

University of Edinburgh - Accounting and Finance ( email )

29 Buccleuch Place
Edinburgh, EH8 9JS
United Kingdom
44 131 650 3794 (Phone)

Ronan Gallagher

University of Edinburgh - Edinburgh Business School ( email )

29 Buccleuch Pl
Edinburgh, Scotland EH8 9JS
United Kingdom

Jiaman Xu

University of Edinburgh - Accounting and Finance Group ( email )

Business School
University if Edinburgh
Edinburgh, Scotland EH8 9JS
United Kingdom

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