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The Role of Institutional Investors in Corporate Finance

  • N. Huyghebaert
  • C. Van Hulle
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    This paper argues that institutional investors may have a positive effect on stock prices. This effect realizes through different mechanisms: institutional investors reduce information asymmetries between firms and (other) investors, contribute to the liquidity of the company’s stock and improve its corporate governance. We conjecture that firms, understanding the benefits of having institutional investors in their ownership, may do efforts to attract them. We apply this idea in the context of IPOs. Using data on Belgian IPOs over the period 1984-2000, we find that firms using the stock market as a financing vehicle and firms less likely to be monitored by corporate blockholders are more likely to pre-allocate shares to institutional investors at IPO-time. Finally, pre-allocating shares to institutional investors is shown to reduce underpricing and enhance post-IPO liquidity.

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    File URL: http://www.econ.kuleuven.be/tem/jaargangen/2001-2010/2004/TEM2004-4/TEM_4-04_07_HUYGHEBAERT.pdf
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    Article provided by Katholieke Universiteit Leuven, Faculteit Economie en Bedrijfswetenschappen in its journal Review of Business and Economics.

    Volume (Year): XLIX (2004)
    Issue (Month): 4 ()
    Pages: 689-726

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    Handle: RePEc:ete:revbec:20040406
    Contact details of provider: Postal: Naamsestraat 69, 3000 Leuven
    Web page: http://www.econ.kuleuven.be

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