Determinants of Equity Investments by Long-Term Institutional Investors: Evidence from Brazil

Abstract

This paper analyses the determinant factors of equity investments made by insurance companies, and pension funds. Brazil offers an interesting case study, because these institutional investors have a huge potential in increasing their equity investments in the future, because their investments in stocks nowadays are far below the limits imposed by regulators. Therefore, understanding what kind of companies these institutions would be willing to invest is important to help them on their efforts to attract these investors. Two kinds of analyses are performed. First, we use a logit model in order to estimate the probability for a given company to be in these investors' portfolios. Then we run regressions to analyze the determinants of the size of stock ownership of these investors in a given company. Our results indicate that these investors tend to invest in large, liquid, leveraged companies with good corporate governance practices.