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Does the influence of institutional investors depend on the institutional framework? An international analysis

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  • Mauricio Jara-Bertin
  • Félix J. López-Iturriaga
  • Óscar López-de-Foronda

Abstract

This article analyses the effect of institutional ownership in alleviating or exacerbating the conflicts of interests among stakeholders in different legal and institutional frameworks. This analysis is carried out based on two characteristics: the concentration of power of institutional ownership and the identification of the main types of institutional investors. In common law countries, consistent with the convergence and entrenchment hypotheses, we find a U-shape relation between ownership structure and firm performance. In civil law countries, consistent with the collusion and contest theories, we find an inverted U-shape relation. We also find that when institutional investors are classified as pressure resistant and pressure sensitive according to the strength of their ties with managers, pressure-resistant investors, who operate more independently, are the most capable of improving the value of the firm.

Suggested Citation

  • Mauricio Jara-Bertin & Félix J. López-Iturriaga & Óscar López-de-Foronda, 2012. "Does the influence of institutional investors depend on the institutional framework? An international analysis," Applied Economics, Taylor & Francis Journals, vol. 44(3), pages 265-278, January.
  • Handle: RePEc:taf:applec:44:y:2012:i:3:p:265-278
    DOI: 10.1080/00036846.2010.502112
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    File URL: http://hdl.handle.net/10.1080/00036846.2010.502112
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    References listed on IDEAS

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    1. repec:spr:portec:v:1:y:2002:i:2:d:10.1007_s10258-002-0009-9 is not listed on IDEAS
    2. Bhattacharya, Prasad S. & Graham, Michael, 2007. "Institutional ownership and firm performance: evidence from Finland," Accounting, Finance, Financial Planning and Insurance Series aef_2007_01, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
    3. Stephen Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
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    Cited by:

    1. Doaa El-Diftar & Eleri Jones & Mohamed Moustafa Soliman, 2016. "The Impact of Institutional Blockholders on Voluntary Disclosure and Transparency: The Case of Egypt," Working Papers 1039, Economic Research Forum, revised Aug 2016.
    2. Fernandez, Viviana, 2014. "Stock volatility and pension funds under an individual capitalization-based system," Journal of Business Research, Elsevier, vol. 67(4), pages 536-541.
    3. Belanès, Amel & Saihi, Malek, 2016. "Evidence on complementarity and substitution contingency in monitoring and bonding mechanisms," Research in International Business and Finance, Elsevier, vol. 38(C), pages 161-171.
    4. Roberto Álvarez & Mauricio Jara-Bertín & Carlos Pombo, 2016. "Do institutional investors unbind firm financial constraints? Evidence from emerging markets," DOCUMENTOS CEDE 015114, UNIVERSIDAD DE LOS ANDES-CEDE.

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