Information advantages of large institutional owners

Abstract

We study the relation between the percentage of outstanding shares held by a firm's largest institutional owner and the bid–ask spread on that firm's shares, a measure of information risk. We find that the greater the percentage of shares held by the largest institutional investor, the greater the bid–ask spread in share prices. In contrast, the percentage of shares held by smaller institutional owners is related to lower bid–ask spreads. The results imply that only the largest of a firm's institutional owners—and no other institutional owner—is perceived to hold an information advantage. Copyright © 2007 John Wiley & Sons, Ltd.

Institutional ownership monitoring and corporate political activity: Governance implications

“…Because they also have much more to gain than smaller investors, large owners are more likely to assume monitoring costs. Empirical evidence supports the view that the presence of the largest equity holder can reduce agency costs (Schnatterly, et al 2008). …”

“…Firm equity stake strongly influences owner incentives to monitor (Schnatterly, Shaw and Jennings, 2008), such that among institutional investors, large shareholders (and the largest investor particularly) are especially likely to monitor to protect their sizeable investment (Del Guercio and Hawkins, 1999). These large investors recognize the magnitude of their equity stakes and the penalties associated with market exit (Ciccotello and Grant, 1999).…”

“…First, as Schnatterly et al (2008) observe, large institutional investors typically have direct access to management, and Useem (1996) suggests that this ability to influence proxy voting could earn them special attention from management. The greater the stakes of the largest institutional owner, the more special attention managers receive (Kane and Veluri, 2004).…”

The Effect of Ownership Structure on Corporate Social Responsibility: Empirical Evidence from Korea

“…For instance, Shleifer and Vishny (1997) argued that institutional owners are influential in organizational decisions by exercising substantial voting power as well as having asymmetric information advantages over other shareholders (Schnatterly et al 2008). Using their power and information, institutional investors tend to be more actively involved in firms' decisions than noninstitutional stockholders (Brickley et al 1988).…”

Shareholder Wealth Effects of CEO Succession

“…This paper uses an institutional ownership measure, after Hadani [17], which takes the percentage of outstanding shares held by the single largest institutional owner. The measure has gained currency based on earlier findings suggesting that only the largest institutional owner would likely possess any information advantage [24].…”