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The role of institutional investors in the financial development

Author

Listed:
  • Alin Marius Andrieş

    (Alexandru Ioan Cuza University of Iasi
    Romanian Academy)

  • Mihaela Brodocianu

    (Alexandru Ioan Cuza University of Iasi)

  • Nicu Sprincean

    (Alexandru Ioan Cuza University of Iasi)

Abstract

During last decades, financial assets and trading volumes of institutional investors have increased worldwide at a rapid pace, influencing the structure of financial system, encouraging innovation and efficiency and enlarging economy’s financing possibilities. In this paper, we assess how institutional investors influence financial development using a dataset covering 34 countries members of Organisation for Economic Co-operation and Development (OECD) during 1995–2019 period. Our results suggest that the increased presence of institutional investors, especially investment funds, is beneficial for the financial system as a whole, a finding that is robust across different specifications and estimation techniques, both static and dynamic. We extend our analysis by examining the main components of financial development and document that the effect manifests primary for financial institutions, whereas the influence on financial markets is found to be statistically insignificant. Therefore, institutional investors can improve the access to long-term investments and financial services. Findings bear critical policy implications for policymakers that seek to promote financial development as creating propitious conditions, robust regulatory environment and greater flexibility in investment regulations, especially for pension funds and insurance companies, will contribute to better risk-adjusted returns and thus enhanced development of the financial system.

Suggested Citation

  • Alin Marius Andrieş & Mihaela Brodocianu & Nicu Sprincean, 2023. "The role of institutional investors in the financial development," Economic Change and Restructuring, Springer, vol. 56(1), pages 345-378, February.
    • Handle: RePEc:kap:ecopln:v:56:y:2023:i:1:d:10.1007_s10644-022-09425-0
    DOI: 10.1007/s10644-022-09425-0
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    More about this item

    Keywords

    Institutional investors; Financial development; Financial institutions; Financial markets;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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