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Institutional Investors, Financial Health, and Equity Valuation

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  • Dan S. Dhaliwal
  • Oliver Zhen Li
  • Hong Xie

Abstract

We investigate the relation between institutional ownership, financial health, and the market valuation weights on earnings and the book value of equity. We find that the valuation weight on earnings (book value) increases (decreases) with the level of institutional ownership for profit firms, while that on book value increases with the level of institutional ownership for loss firms. This valuation effect is not subsumed by incorporating current measures of financial health and is mainly driven by institutions with long investment horizons and monitoring incentives. We conclude that the institutional valuation effect is consistent with institutions playing a positive governance role.

Suggested Citation

  • Dan S. Dhaliwal & Oliver Zhen Li & Hong Xie, 2010. "Institutional Investors, Financial Health, and Equity Valuation," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 17(2), pages 151-173.
    • Handle: RePEc:taf:raaexx:v:17:y:2010:i:2:p:151-173
    DOI: 10.1080/16081625.2010.9720858
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    Cited by:

    1. Gudz Tetiana, 2017. "Financial equilibrium as basis for enterprise’s sustainable development: economic and mathematical foundation," Technology audit and production reserves, 5(37) 2017, Socionet;Technology audit and production reserves, vol. 5(4(37)), pages 51-56.
    2. Sebahattin Demirkan & Harlan Platt, 2018. "Differential Investors Response to Restatement Announcements: An Empirical Investigation," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 2(2), pages 29-59.

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