Institutional Ownership and the Returns on Investment
AbstractBy examining a large number of Swedish listed firms, we analyse how institutional and foreign owners affect investment performance. To measure investment performance Mueller and Reardon’s (1993) marginal q is used, although derived directly from Tobin’s average q. Marginal q measures the ratio of the return on investment to the cost of capital. Our findings show that both domestic and foreign institutional owners positively influence firm performance. Furthermore a non-linear relation between institutional ownership concentration and performance is found. This is consistent with positive incentive effects and negative entrenchment effects. 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. The practice of dual-class shares which separates cash-flow rights and control rights is also found to be an important determinant of firm performance that eradicates the positive influence of institutional ownership.
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Bibliographic InfoPaper provided by The Ratio Institute in its series Ratio Working Papers with number 128.
Length: 24 pages
Date of creation: 25 Nov 2008
Date of revision:
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More information through EDIRC
Corporate governance; institutions; ownership; performance; Tobin’s q; marginal q;
Find related papers by JEL classification:
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-12-01 (All new papers)
- NEP-BEC-2008-12-01 (Business Economics)
- NEP-CFN-2008-12-01 (Corporate Finance)
- NEP-EFF-2008-12-01 (Efficiency & Productivity)
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.:
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