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Institutional investors and corporate investment

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  • Cella, Cristina

Abstract

Using investors’ trading horizons to capture their incentives to collect information and monitor management's decisions, this paper shows that an increase in the ownership stake held by long-term institutional investors is associated with a subsequent decrease in real investment precisely in firms that invest too much. In support of the monitoring hypothesis, we show that results are driven by the purchases of long-term investors, while quasi-indexers and short-term investors have no influence on investment. We address the potential problem of endogeneity using the inclusion of a firm to the S&P 500 Index as an exogenous shock to institutional holdings.

Suggested Citation

  • Cella, Cristina, 2020. "Institutional investors and corporate investment," Finance Research Letters, Elsevier, vol. 32(C).
    • Handle: RePEc:eee:finlet:v:32:y:2020:i:c:s1544612319301801
    DOI: 10.1016/j.frl.2019.04.026
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    8. Sophie Wang, Qing & Lai, Shaojie & Pi, Shuwen & Anderson, Hamish, 2022. "Does directors' and officers' liability insurance induce empire building? Evidence from corporate labor investment," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    9. Sabahat Riaz & Mohamed Hisham Hanifa & Fauzi Zainir, 2021. "Does Foreign Institutional Equity Participation Instigate Sustainable Corporate Investment Efficiency? Evidence from Emerging Economies," Sustainability, MDPI, vol. 13(8), pages 1-17, April.
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    11. Ghazali, Ahmad & Khaw, Karren Lee-Hwei & Zainir, Fauzi Bin, 2022. "Development vs. political views of government ownership: How does it affect investment efficiency?," Finance Research Letters, Elsevier, vol. 48(C).

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