The impact of institutional ownership on corporate operating performance

Abstract

This paper examines the relationship between institutional investor involvement in and the operating performance of large firms. We confirm a significant relationship between a firm's operating cash flow returns and both the percent of institutional stock ownership and the number of institutional stockholders. However, the positive relationship between the number of institutional investors holding stock and operating cash flow returns is found only for pressure-insensitive institutional investors (those with no business relationship with the firm). The number of pressure-sensitive institutional investors (those with an existing or potential business relationship with the firm) has no impact on performance. These results suggest that institutional investors that need to protect actual or promote potential business relationships with firms in which they invest are compromised as monitors of the firm, and lend credence to calls for greater independence of board members from firms.

Ownership Structure and Bank Performance

“…Similarly, [14] and [6] find that the type of ownership structure determines firm performance. However, the studies on the impact of each type of ownership on firm performance provide mixed results and still unclear [21].…”

hareholder’s Political Motives and Corporate Tax Avoidance

“…The pressure on the management to undertake aggressive tax reporting can be triggered by financial strain faced by the corporation's shareholders as to satisfy their political activities. Cornett et al (2007) mentioned that institutional investors are becoming increasingly willing to use their ownership rights to pressure managers to act in the best interest of the shareholders. Recent accounting research investigated the link between ownership structures and corporate tax avoidance.…”

The Value of Blockholders Shaped by Moderators

“…Similarly to Cornett et al (2007) and Denis, Kruse (2000), as proxy of performance, we use an industry-adjusted operating cash flow return on assets based on the ratio between EBITDA and total asset. Industry-adjusted comparisons allow us to examine firm-specific performance irrespective of any industry-factors that may affect ROA.…”