Institutional Ownership Heterogeneity and Firm Performance: Evidence from Malaysia

Abstract

The roles of institutional owners in alleviating agency problem and its effect on firms have been studied extensively in corporate finance. However, these researches have mixed results because most have treated institutional owners as a homogenous group. Drawing on previous research, this study differentiates institutional owners as transient or dedicated owners. These two groups of institutional owners differ significantly in terms of size of holdings, purposes, goals as well as monitoring efforts. The objective of this study is to determine how the institutional ownership structure i.e. transient or dedicated ownership affect firm performance within the context of agency theory. To determine whether treating the sample homogenously or heterogeneously has different effects on firm performance, this study also examine the effect of total ownership (whereby the sample is treated homogeneously) on firm performance. Using panel data that span from 2002 to 2006, several hypotheses are tested based on data of firms listed on Bursa Malaysia's Kuala Lumpur Composite Index (KLCI) using hierarchical regression analysis methodology. The empirical results indicate that total institutional ownership and dedicated ownership have no significant effect towards firm performance. Transient ownership, however, has statistically significant effect on firm performance. These results show that institutional ownership is heterogeneous with transient ownership structure monitor the management themselves. The establishment of the differing effect of institutional ownership due to the heterogeneous nature of ownership suggests that future research in this area must take into account the heterogeneity.

Does the Institutional ownership, Return On Asset and Leverage affect Company Value

“…Therefore, monitoring conducted by institutional investors encourages managers to act in the interests of shareholders so as to reduce problems that occur within the company (Mussa, musová & debnárová, 2015). The presence of institutional owners is increasingly becoming an important external control mechanism in monitoring management to act on behalf of shareholders and company interests (Katan & Mat Nor, 2015).…”

The influence of heterogeneous institutional investors on company strategies in emerging countries: Evidence from Brazil

“…Furthermore, differentiating institutional investors into two groups, transient and dedicated owners, Katan and Mat Nor (2015) verified that, in general, the presence of institutional investors in the ownership structure of Malaysian companies had no effect on firm performance. 1 However, when the authors specifically analysed the transient ownership group, the results showed a significant influence on firm performance.…”

“…2 In general, the hypothesis of the aforementioned studies maintains that since institutional investors do not form a homogenous group, their influence may also vary. Certain studies have used legal type classifications 3 to group these agents (Bushee, 2004;Katan and Mat Nor, 2015), while other studies have considered other factors, including the degree of investor independence, 4 investor country of origin and whether the investor is private or public (Brossard et al, 2013;Chen et al, 2007;Ferreira and Matos, 2008). However, several study approaches do not necessarily incorporate background information into the behaviour of institutional investors and disregard significant intra-group variation associated with the size and stability of ownership, sensitivity to current returns, and other factors associated with investment profile (Bushee, 1998(Bushee, , 2001Crane et al, 2016).…”

“…Therefore, when investing in Brazilian companies, foreign investors may be almost exclusively interested in diversifying their portfolios and demonstrate a reduced interest in playing an active role in the company's decision-making process (Kaltenbrunner and Painceira, 2015). Even in cases where the investor -foreign or national -is inclined to exert a close monitoring effort, the influence may be directed to financial investments, not necessarily due to a search for short-term returns, but instead to the investor's preference for investments with a beneficial risk/return relationship for the company itself (Demir, 2007(Demir, , 2009Katan and Mat Nor, 2015). Karwowski and Stockhammer (2017) highlighted that despite an increasing number of studies focusing on the financialization of emerging countries, no systematic comparison across studies existed.…”

“…Previous studies have found evidence that institutional investors have a relevant effect on the strategies of non-financial corporations (NFC). In addition, studies have indicated that this influence varies according to the characteristics of these agents and the domestic institutional environment (Becker et al, 2010;Brossard et al, 2013;Bushee, 2004;C¸elik and Isaksson, 2013;Chen et al, 2007;Crane et al, 2016;David et al, 2001;Ferreira and Matos, 2008;Karwowski and Stockhammer, 2017;Katan and Mat Nor, 2015).…”