We examine the impact of institutional investor networks on firm innovation in China. Employing the unexpected departure of mutual fund managers and the inclusion of the Shanghai-Shenzhen 300 index ...as identifications, we find that institutional investor networks have a positive impact on firm innovation. Specifically, firms that are hold by well-connected institutional investors are motivated to make R&D investments and receive greater patents than their counterparts. This positive influence is more pronounced for non-SOEs and for firms located in less-developed regions, indicating that institutional investor networks act as information flow facilitator and a value certifier to encourage innovation activities.
•We examine the impact of institutional investor networks on firm innovation in China.•Central active institutions have a positive influence on firm innovation.•The positive effect is robust to endogeneity concerns and a series of robustness tests.•This positive influence is more pronounced for non-SOEs and for firms located in less-developed regions.•institutional investor networks act as information flow facilitator and a value certifier to encourage innovation activities.
•Over time, institutional investors have increased holdings of leveraged exchange traded funds (ETFs).•A subset of independent investment advisors, quasi-indexers, and transient portfolio managers ...are the most likely holders of leveraged ETFs.•Institutional holdings of leveraged ETFs predict weak future institutional performance likely related to poor manager skills and poor market timing.•Risk-shifting may be occurring with managers reducing positions in leveraged ETFs following good past performance, to potentially lock-in prior returns (that may be closely tied to compensation).
We document the increasing role leveraged exchange traded funds (ETFs) play in institutional portfolios over time. A subset of independent investment advisors, quasi-indexers, and transient portfolio managers all make substantive use of these tools. Leveraged ETFs can be used for diversification or to implement strategic bets. Empirical tests suggest that institutional holders of leveraged ETFs predict weak portfolio performance in aggregate, consistent with manager hubris, especially among the set of institutional managers most likely to lack management skill. Interestingly, managers appear to reduce positions in leveraged ETFs following good past performance, potentially to lock in good returns, consistent with compensation-based incentives.
We conjecture that the presence of short-term institutional investors exacerbates agency conflicts between shareholders and creditors because short-term institutions might force firm managers to take ...myopic actions. Using the data on private debt to U.S. firms, we find that the investment horizons of institutional investors are negatively correlated with the number of loan covenants and loan spreads. We also document that short-term (long-term) institutional ownership is positively (negatively) correlated with the number of covenants, and that banks charge higher spreads on loans issued to firms with more short-term institutional ownership. These findings are consistent with our conjecture.
In this paper, we investigate the role of institutional investors on firm value in Brazil. Given this purpose, we construct a longitudinal dataset of Brazilian companies in which 2,019 distinct ...institutional investors from 47 countries had equity holdings from 2009 to 2018. In contrast with previous studies, panel data regressions indicate that foreign institutional ownership decreases corporate value, even when we mitigate for endogeneity concerns through the generalized method of moments estimator. Additionally, the negative effect of foreign institutional ownership on firm value is greater during times of high political uncertainty. Our findings suggest that foreign institutional investors may induce family-controlling shareholders to adopt short-term strategies that destroy company value, which is consistent with the "locust foreign capital" view.
•The paper reviews the literature and develops a model which is then tested empirically using the data from the Shenzhen Stock Exchange in the Chinese context.•This paper examines the relationship ...between institutional investor research, institutional investor heterogeneity and the company's equity capital cost.•The study reveals that institutional investor research can significantly reduce the company's cost of equity capital.•The greater the proportion of field research in the total investment activity, the lower the company's equity capital cost.•The institutional investors can reduce the company's capital cost by conducting on-the-spot investigations, on-site visits, etc., intervening in corporate governance, improving the company's information disclosure level, and playing the role of external supervision.
Based on the data from a Chinese capital market, this paper examines the relationship between institutional investor research, institutional investor heterogeneity and the company's equity capital cost. The paper reviews the extant literature from which it develops a model which is then tested empirically using the data from the Shenzhen Stock Exchange in the Chinese context. The paper reveals that institutional investor research can significantly reduce the company's cost of equity capital. That is, the greater the proportion of field research in the total investment activity, the lower the company's equity capital cost. Moreover, institutional investors can reduce the company's capital cost by conducting on-the-spot investigations, on-site visits, etc., intervening in corporate governance, improving the company's information disclosure level, and playing the role of external supervision.
Purpose - As the influence of institutional investors over managerial decision-making grows, so does the importance of understanding the effect of institutional investor ownership (IO) on firm ...outcomes. The authors take a comprehensive approach to studying the effect of IO on earnings management (EM). Design/methodology/approach The authors study the relation between IO and EM using a sample of 59,503 listed U.S. firm-year observations from 1981-2019. The authors proxy EM with earnings surprises and with accrual-based and real activity measures. The authors test for nonlinear relations and analyze changes resulting from the passage of the Sarbanes-Oxley Act. Findings The findings support a positive IO-EM relation overall, but show that the relation is dynamic and heavily context-dependent with evidence of nonlinearity. The authors also find evidence that IO positively affects accrual-based EM and real activities EM negatively. Originality/value To the authors' knowledge, this is the first study of the IO-EM relation to consider evidence of nonlinearity in the U.S. context, measuring changes to the relation over time, and with the use of several measures of EM.
•New Product Pre-announcements (NPPAs) are issued by firms signaling the availability of a new product at a future date.•Retail and institutional investors have varying levels of knowledge and ...resources and differ in their response to an NPPA.•The differences involve investment horizons, risk taking and influence of external reports in buy decisions.•Retail investors are not ordinarily drawn to an NPPA and prefer riskier firms and shorter time horizons of investment.•Conversely, institutional investors do react to an NPPA and prefer lower-risk stocks.•Analyst reports for institutional investors and business media for retail investors may change such inherent preferences.•Institutional but not retail investors are instrumental in new product release following an NPPA.
Firms often use new product preannouncements (NPPAs) to attract investors and inform them about innovative offerings in the pipeline. We observe that the appeal of an NPPA differs for retail and institutional investors. Utilizing prospect theory, we argue that the two types of investors face unequal levels of uncertainty and are dissimilarly loss averse due to varying levels of knowledge and access to resources. This results in varying attitudes towards investment horizon, risk-taking, and preference for information sources. We find investor proclivity toward an NPPA depends on several factors, including the short-term abnormal return, the valence of coverage in media and analyst reports, the firm's risk profile, and the exploration emphasis of the firm. Moreover, we show that higher levels of institutional ownership ultimately contribute to new product success. The results hold implications for strategies that managers can employ to increase investor ownership within the firm to fund innovation.
•Foreign shareholding influences dividend decisions and vice versa.•Changes in dividend payments over time positively affect subsequent changes in foreign shareholding, but the opposite is not ...true.•Foreign institutional investors do not change firms future dividend payments once they have made their investment choices in China.•Chinese listed firms can use dividend payouts to signal good investment opportunities to foreign institutional investors.
This study examines whether foreign institutional investment influences firms’ dividend policies. Using data from all domestically listed nonfinancial firms in China during the period of 2003–2013, we find that foreign shareholding influences dividend decisions and vice versa.
Furthermore, changes in dividend payments over time positively affect subsequent changes in foreign shareholding, but the opposite is not true. Our study indicates that foreign institutional investors do not change firms’ future dividend payments once they have made their investment choices in China. Moreover, they self-select into Chinese firms that pay high dividends. Our evidence suggests that in an institutional setting where foreign investors have tightly restricted access to local securities markets and a relatively high risk of expropriation by controlling shareholders exists, firms can use dividends to signal good investment opportunities to foreign investors.
•Interaction of payout policy and investment opportunities.•Institutional investors condition preferences for dividends on need to fund growth.•Investing style is an important mediator in preferences ...for combinations of payout levels and growth opportunities.
This paper examines the relationship between institutional holdings and dividend policy by jointly considering investment style and firms’ growth opportunities. It helps to resolve the apparent low-dividend-preference puzzle in which institutional investors have higher holdings in dividend-paying firms, but among dividend payers, prefer firms that pay low dividends. We find that, controlling for style, institutional investors’ preferences for dividends are based on whether payout levels are consistent with firms’ needs to fund growth opportunities. High payout is preferred for firms with low growth opportunities, and low or no payout is preferred for firms with high growth opportunities. The results enhance our understanding of payout preferences of institutions by demonstrating the interactions of investment opportunities and investing style with respect to institutional investors’ payout preferences.
business leaders' social status significantly impacts companies' strategic direction and performance. Digital transformation, an important tool for companies to enhance competitiveness and ...resilience, plays an important role in the relationship between executive background and firm performance.
To investigate the impact of celebrity chief executive officers (CEO) on firm performance through digital transformation.
Using data from companies listed on the main boards of the Shanghai and Shenzhen Stock Exchanges between 2017 and 2021, this study explored the relationship between celebrity CEOs, digital transformation, and firm performance.
Celebrity CEOs significantly enhanced a firm's digital transformation. However, this effect weakened when controlling shareholders and institutional investors held more shares. Additionally, the study showed that celebrity CEOs can improve firm performance through digital transformation. These findings were robust across a range of sensitivity analyses.
This study contributes to understanding celebrity CEOs' decision-making motivations and economic impacts from a psychological perspective while also providing valuable insights for driving digital transformation within companies.
