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Does common institutional ownership affect systemic risk of non-financial firms? Evidence from China

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  • Li, Xiao-Lin
  • Hao, Jiawei
  • Liu, Liang

Abstract

Using data on common institutional ownership (CIO) and systemic risk of Chinese listed manufacturing firms from 2010 to 2022, our paper investigates the effect of CIO on systemic risk of non-financial firms (NFFs). We find that CIO is positively associated with the systemic risk of NFFs. We identify two channels through which CIO influences NFFs’ systemic risk: exacerbating risk accumulation through firm manipulation and increasing risk interconnectedness among firms. Our results are validated by several robustness tests. Heterogeneity analysis indicates that the effect of CIO on systemic risk is more pronounced in NFFs with lower stock liquidity, lower transparency, lower product market competition, and higher financing constraints. Finally, we find that CIO networks propagate individual firms’ tail risk and thereby form a systemic risk danger. Our paper presents policy recommendations for regulators, stressing the need to effectively manage the development of CIO to mitigate its potential adverse effects, especially amid the Chinese government’s promotion of institutional investors in capital markets.

Suggested Citation

  • Li, Xiao-Lin & Hao, Jiawei & Liu, Liang, 2025. "Does common institutional ownership affect systemic risk of non-financial firms? Evidence from China," Economic Analysis and Policy, Elsevier, vol. 87(C), pages 235-255.
    • Handle: RePEc:eee:ecanpo:v:87:y:2025:i:c:p:235-255
    DOI: 10.1016/j.eap.2025.06.005
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