Does the influence of institutional investors depend on the institutional framework? An international analysis

Abstract

This article analyses the effect of institutional ownership in alleviating or exacerbating the conflicts of interests among stakeholders in different legal and institutional frameworks. This analysis is carried out based on two characteristics: the concentration of power of institutional ownership and the identification of the main types of institutional investors. In common law countries, consistent with the convergence and entrenchment hypotheses, we find a U-shape relation between ownership structure and firm performance. In civil law countries, consistent with the collusion and contest theories, we find an inverted U-shape relation. We also find that when institutional investors are classified as pressure resistant and pressure sensitive according to the strength of their ties with managers, pressureresistant investors, who operate more independently, are the most capable of improving the value of the firm.

The role of directors representing institutional ownership in sustainable development through corporate social responsibility reporting

“…Previous literature finds a linear relationship between institutional directors and CSR. However, Jara‐Bertín, López‐Iturriaga, and López‐de‐Foronda () and Zou () show a quadratic nonlinear association between institutional investors and firm performance. This relationship is supported by the theory of optimal distinctiveness (Brewer, ).…”

Female Institutional Directors on Boards and Firm Value

“…Furthermore, Faccio and Lang (2002) and RuizMallorquí and SantanaMartín (2011) show that institutional investors play an important role in the corporate decisionmaking process. However, authors such as La Porta et al (1999), Levine (1999), Levine et al (2000) and JaraBertín et al (2012) suggest that the influence of institutional directors on firm value depends on whether the country complies with the civil or common law. It seems that they have much more influence in civil than common law countries.…”

El Consejero Dominical y el Gobierno Corporativo / Institutional Directors and Corporate Governance

“…The results indicate that the proportion of institutional directors on boards reduces the CEO total compensation, but when the percentage of such directors reaches a certain point, they will be more likely to support a higher CEO total pay. This non-linear relation, specifically a U shaped, is in line with previous studies (Chirinko et al, 1999;Jara-Bertín et al, 2012;Navissi and Naiker, 2006;Zou, 2010), which show that institutional directors may play two opposite roles: at low levels of representation, monitoring activities are undertaken by institutional directors, which reduce CEO compensation (e.g. Almazán et al, 2005;Ezzeddine and Lamia, 2006;Firth et al, 2007;Ning et al, 2015;Sánchez-Marín et al, 2011).…”

“…This allows them to be more independent of the firm, and consequently, it is more probable that they will take an active part in monitoring and exerting pressure to instigate changes (Almazán et al, 2005;Ferreira and Matos, 2008;Jara-Bertín et al, 2012;Pucheta-Martínez and García-Meca, 2014;Ruiz-Mallorquí and Santana-Martín, 2009), thereby mitigating agency problems between shareholders and managers. Additionally, these directors prefer to invest in a long-term horizon (Tihanyi et al, 2003).…”