Institutional Investors and Corporate Performance: Insights from China

Abstract

This study uses the annual data of Chinese A-share listed companies held by institutional investors during the period of 2005–2016 for empirical analysis. First, this study uses the panel regression model to explore the relationship between institutional ownership and stock return volatility. Then, the CAPM one-factor model and the Fama–French three-factor model are used to analyze the relationship between institutional ownership and idiosyncratic risks. Finally, we estimate the relationship between institutional ownership and corporate governance. Furthermore, we compare the empirical results before, during, and after the crisis. This study uses the Hausman test and the endogenous test to validate the results. The empirical results show that the management behavior of independent institutional investors is more obvious post-crisis. However, gray institutional investors have no impact on idiosyncratic risks. In the regression of the CAPM one-factor model, domestic institutional investors have effectively reduced the idiosyncratic risks before the financial crisis. Foreign institutions’ monitoring performance before, during, and after the crisis is not obvious. All institutional ownership has a significant positive impact on the top 10 shareholders, but independent and domestic institutional ownership has a significant negative impact on senior shareholders. Institutional ownership has little impact on the movement of the first shareholder and CEO.

Foreign Institutional Investments (FIIs) and the Saudi Stock Market: What Drives Foreign Institutions to Invest?

“…This is in line with the base-broadening hypothesis proposed by Merton (1987). Foreign investors can reduce transaction and information costs by providing higher information quality, better reporting standards, and more developed corporate governance regulations (Vo, 2015;Panda & Leepsa, 2018;Lin & Lu, 2019). Further, foreign investors can reduce the financial risk of local companies by substituting debt financing, which supports the leverage effect theory.…”

“…The findings support rational FIIs and their support for local companies by providing them with a low-cost source of capital. Lin and Lu (2019) show that both independent institutional ownership and domestic institutional ownership stabilize the Chinese stock market by reducing the volatility and idiosyncratic risk in stock returns. Foreign investors, on the other hand, can have a destabilizing effect due to their short-term or speculative investment strategies (Brzeszczynski & Bohl, 2006;Kim & Jo, 2019).…”

“…First, the ownership stake of foreign institutions as of 2020 accelerated to 12.23% compared to their low ownership share of 0.73% as of 2018 (www.Tadawul.com.sa). Second, FIIs are expected to stabilize the market and improve corporate governance control (Panda & Leepsa, 2018;Lin & Lu, 2019). Therefore, we intend to explain in this paper the forces behind FIIs, what attracts them to invest, and their role in market stability.…”

The Mediating Effect of Internal Control for the Impact of Institutional Shareholding on Corporate Financial Performance*

“…Institutional shareholding is an external factor in corporate governance. In the existing literature, Lin and Lu (2019) and Panda and Leepsa (2019) investigated the impact of institutional shareholding on corporate performance. Li and Yan (2017) and Chen and Keung (2018) analyzed the impact of institutional shareholding on IC.…”

Did Institutional Investors’ Behavior Affect U.S.-China Equity Market Sentiment? Evidence from the U.S.-China Trade Turbulence

“…The U.S. market is mainly composed of rational institutional investors, while the proportion of institutional investors in the Chinese market is small. As an active investor [6], does institutional investor's rationality show the role of stewardship [7][8][9] in the different market environments of both parties in the trade turbulence? That is to say, when the equity market sentiment is overconfident or excessively negative, institutional investors have a restraining effect, which stabilizes the market's emotional volatility, reduces the risks in the financial market, and plays a role in stabilizing the financial markets of both parties.…”