This study investigates the effects of company visits by institutional investors on managerial myopia about investment in research and development (R&D) in China. We find that company visits increase ...R&D spending. We also find that this increase is more pronounced for companies that have an entrenched chief executive officer (CEO), as indicated by longer CEO tenure and CEO duality, and for companies that face less intense market competition. The results further show that the increase in R&D spending is more pronounced for companies that have larger institutional ownership, are invested by long-term oriented institutions, are in the high-tech industry, and are state owned. These findings attest to the governance role of institutional investors.
This article examines the effect of institutional investors’ investment horizons on firms’ innovation activities. We conjecture that the presence of long‐term institutional investors mitigates ...managerial myopia, prompting firms to generate greater corporate innovation outputs. Using data on patents and patent citations for US firms, we find that institutions’ investment horizons are positively related to the number of patents and patent citations. We also document that long‐term (short‐term) institutional ownership is positively (negatively) related to the innovation outputs. This article makes an additional contribution to the corporate innovation literature by addressing the positive role of long‐term institutional investors.
This study examines the effect of institutional ownership on dividend payouts through the lens of agency theory. We hypothesize that only institutions with certain traits are likely to monitor. ...Monitoring institutions will use dividend payouts as a tool to mitigate firms' agency problems, conditional on those firms' financial performance. We find that (1) there is a positive relation between lagged long-term institutional ownership with a large stake and the dividend payout ratio, (2) the positive relation is more salient in firms with high agency costs, and (3) the positive relation is more salient when external monitoring is weak. These findings support that (1) concentrated and long-term institutional investors play a monitoring role and (2) monitoring institutions use dividend payouts as a monitoring device. Our findings are robust to endogeneity tests, level and change models, alternative income-based dividend payout measures, alternative measures of long-term institutions, and sub-period analyses.
•Long-term institutional investors with large stakes (Top10LTIOwners) monitor.•Top10LTIOwners use dividend payouts as a monitoring device.•Higher dividend payouts with higher Top10LTIOwners where agency costs are high.•Higher dividend payouts with higher Top10LTIOwners where external monitor system is weak.
•A two-period, heterogeneous-agent sentiment model with two tradable assets is proposed.•The joint effect of private information and investor sentiment deviates the price of risky assets.•Following ...the sentiments of institutional investors, individual investors may misunderstand sentiments as information, causing asset prices to further deviate from the fundamental value.•Investor sentiment changes the effect of information on the equilibrium prices relative to the world where all investors are completely rational.•Private information changes the effect of investor sentiment on the equilibrium price in comparison the scenario where market information is symmetry.
We develop an asset pricing model with sentiment interactions between institutional and individual investors under the condition of information asymmetry. Our model considers private information and investor sentiment, two imperfections in securities markets, and integrates them into a theoretical model to investigate the role of the interaction between information asymmetry and investor sentiment in asset pricing. We show that the joint effect of private information and investor sentiment deviate the price of risky assets and efficiently explains anomalies in the stock market. Investor sentiment changes the effect of information on the equilibrium price relative to a world where all investors are completely rational. Private information changes the effect of investor sentiment on the equilibrium price in comparison with a scenario with symmetric market information. In addition, the individual investors’ learning and the disclosure of information both allow private information to be better integrated into the price and simultaneously changes the effect of investor sentiment on the equilibrium price.
Herding can cause stock market volatility and its presence among foreign institutional investors (FIIs) can severely affect the equity market. Therefore, this research endeavors to estimate the ...industry-level herding by FIIs. Further, repercussions of trading volume, industry returns, and conditional volatility on herding have been analyzed in the study. In addition, the level of FIIs herding has been estimated during upswing and downswing markets, rising and falling trading volume, and conditional volatility market states. Herding was estimated using a count-based herd ratio after the global meltdown period. The empirical findings are based on the daily data from January 2010 to December 2019. The results confirmed herding in the Indian equity exchange. The outcomes revealed that buy-side herding was more predominant than sell-side herding in all industries. These findings indicate that the Indian security market is a lucrative investment destination for FIIs. The research disclosed that industrial returns are a vital parameter to derive FII herding. Therefore, this research can be used for price discovery at the industry level. Trading volume and conditional volatility demonstrate an inverse relationship with FIIs herding. Furthermore, the research also reveals that herding was more severe before the structural break period except for the construction sector.
PurposeThis paper examines how the board of directors' attributes in terms of educational and professional backgrounds –that is board capital-, and demographics influence institutional ownership ...across listed companies in Latin America.Design/methodology/approachBased on unique hand-collected information of directors' educational and professional attributes across 427 firms in Latin America, the authors analyze the effects of directors' educational attainment, professional experience and demographic diversification on institutional investors' holdings.FindingsResults show that grey investor ownership favors directors with graduate studies and diverse boards regarding gender and nationality. Independent investors value the directors' professional experience like former founders of a firm. Grey investors are more concerned with firm corporate governance mechanisms, consistent with the agency view. In contrast, independent institutional investors focus on business opportunities following the board of directors' resource-based view.Research limitations/implicationsThis study shows that board capital becomes a key determinant for institutional ownership in emerging markets.Originality/valueThis study extends previous literature on institutional investor preferences by providing empirical evidence that firm board capital becomes a collective asset that is central for institutional investors' investment choices for an emerging market case.
The integration of environmental, social and governance (ESG) criteria into the evaluation process of assets is a theme that is widely accepted among socially responsible investors. In this process, ...however, the integration of investors’ preferences has not been adequately developed. The challenge is to integrate the preferences of heterogeneous investors—not only conventional investors but also investors who are particularly sensitive to sustainability issues (socially responsible investors)—considering that socially responsible investors are not necessarily homogeneous. This paper attempts to address this challenge by developing a methodological approach based on an application of fuzzy multicriteria decision-making methods (MCDM) to integrate ESG investors’ preferences, as jointly considered. Because investors’ preferences may vary depending on which material aspects are considered within a sector, this study has been tested using clothing-sector data. Results confirm the usefulness of the methodological approach proposed for a proper generation of a ‘commercial solution’ that integrates the preferences of various investors and simultaneously is consistent with individually defined preferences.
•Multiple investors’ ESG preferences were integrated into sustainable investment.•The integration was performed through a fuzzy TOPSIS MCDM.•MCDM allows the generation of more accurate investment portfolios.•Institutional investors can use it to further a better engagement with stakeholders.
•We study the strategies of institutional investors in various market states in Chinese unique stock market.•We use the quarterly change in institutional investors’ shareholding between 2007 and ...2019.•Institutional investors act as contrarian traders, and their contrarian trading behaviors concentrate on the up markets.•The activities of institutional investors possess the predictability for future stock returns.
Employing quarterly data of the change in institutional investors’ ownership, we investigate institutional behavior in Chinese stock market. The empirical results show that Chinese institutional investors generally adopt contrarian strategy, which is inconsistent with most studies. In particular, institutional investors are more inclined to show contrarian trading behavior in up markets. Furthermore, we find that the trading activities of institutional investors can positively predict future stock returns.
Based on the theory of social network, this paper studies the relationship between institutional investor clique and audit quality. Existing literature has found that institutional investors and ...audit quality are positively correlated.
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Based on the data of Shanghai and Shenzhen A-share listed companies from 2010 to 2020, this paper examines the relationship between institutional investor clique and audit quality. The result shows that the higher the ratio of shares held by institutional investor clique, the higher the audit quality. The influence mechanism shows that institutional investor clique can affect audit quality by alleviating information asymmetry. The mechanism provides new empirical evidence for the governance effect of institutional investor clique and contributes to understand the governance effect of institutional investor clique.
By exploring additional information, both institutional investors' site visits and analyst coverage can stimulate corporate innovation. However, because analysts are more specialized in information ...exploration, their existence should weaken the effect of institutional site visits on corporate innovation. Using Chinese listed firms from 2009 to 2013, we investigate the effect of institutional site visits on firms' innovation output, with a focus on its heterogeneity from analyst coverage. We use patent citation records to accurately measure firms' innovation output. We find that institutional site visits significantly enhance corporate innovation among firms without analyst coverage, among firms with low analyst coverage, while this effect turns insignificant among firms with high analyst coverage. IV estimations confirm the causality. Additionally, we find that our major results exist only among non-SOEs, firms with a lower quality of information disclosure, firms with lower liquidity, and newly listed firms. Overall, this paper helps better understand the interaction between institutional site visits and analyst coverage regarding information exploration.
•The positive effect of institutional site visits on firm innovation is weakened when analyst coverage is present.•Site visits by mutual funds and private funds function similarly.•This effect is more pronounced among firms with higher information asymmetry.•This effect exists among non-SOEs but not among SOEs.
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