Institutional Owners and the Return on Investments
AbstractExamining a large number of Swedish listed firms, this paper analyses how institutional owners affects the investment decisions and firm performance. During the last decades the ownership structure of Swedish firms has undergone dramatic changes: institutional and foreign investors have been increasing their stakes, whereas Swedish households have decreased in importance. Controlling owners, often founding families, remain in control by resorting to an extensive use of dual-class shares. To measure investment performance Mueller and Reardon’s (1993) marginal q is used. Marginal q measures the ratio of the return on investments to the cost of capital. We find that institutional and foreign owners positively influence the performance of firms. Furthermore a non-liner relation between ownership concentration and performance is found. This is consistent with positive incentive effects and negative entrenchment effects. The practice of dual-class shares which separate cash-flow rights and control rights is also found to be an important determinant of firm performance.
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Bibliographic InfoPaper provided by Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies in its series Working Paper Series in Economics and Institutions of Innovation with number 96.
Length: 31 pages
Date of creation: 06 Sep 2007
Date of revision:
Contact details of provider:
Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden
Phone: +46 8 790 95 63
Web page: http://www.infra.kth.se/cesis/
More information through EDIRC
marginal q; investment returns; institutional owners;
Find related papers by JEL classification:
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-09-09 (All new papers)
- NEP-BEC-2007-09-09 (Business Economics)
- NEP-LAW-2007-09-09 (Law & Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Peter Hogfeldt, 2004. "The History and Politics of Corporate Ownership in Sweden," NBER Working Papers 10641, National Bureau of Economic Research, Inc.
- Marc Goergen & Luc Renneboog, 1999. "Strong Managers and Passive Institutional Investors in the UK," Working Papers 1999.21, Fondazione Eni Enrico Mattei.
- Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
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