Heterogeneity of Institutional Investors and their influence on Internationalization in emerging economy firms

Extant literature highlights the active role played by institutional investors in the strategic decision making of the firms. While studies have examined the impact of different categories of institutional investors on strategic decisions of firms in developed markets (e.g., internationalization), we argue that the impact of different categories of institutional investors on internationalization of emerging economy firms would be different. We develop theoretical arguments by combining insights from institutional theory with agency perspective to highlight the differential impact of institutional investors in an emerging economy. Based on a large sample of Indian firms, we find that foreign institutional investors due to their excellent information advantage select potentially good performing emerging economy firms and support their internationalization endeavours, whereas pressure-sensitive (banks, insurance companies and lending institutions) institutional investors actively dissuade the internationalization of emerging economy firms. We also find that pressure-resistant institutional investors such as mutual funds are also increasingly playing an active role in strategic decisions of portfolio firms.