Institutional Ownership and the Returns on Investment

Per-Olof Bjuggren (), Johan Eklund () and Daniel Wiberg

No 128, Ratio Working Papers from The Ratio Institute

Abstract: By examining a large number of Swedish listed firms, we analyse how institutional and foreign owners affect investment performance. To measure investment performance Mueller and Reardon’s (1993) marginal q is used, although derived directly from Tobin’s average q. Marginal q measures the ratio of the return on investment to the cost of capital. Our findings show that both domestic and foreign institutional owners positively influence firm performance. Furthermore a non-linear relation between institutional ownership concentration and performance is found. This is consistent with positive incentive effects and negative entrenchment effects. During the last decades the ownership structure of Swedish firms has undergone dramatic changes: institutional and foreign investors have been increasing their stakes, whereas Swedish households have decreased in importance. Controlling owners, often founding families, remain in control by resorting to an extensive use of dual-class shares. The practice of dual-class shares which separates cash-flow rights and control rights is also found to be an important determinant of firm performance that eradicates the positive influence of institutional ownership.

Keywords: Corporate governance; institutions; ownership; performance; Tobin’s q; marginal q (search for similar items in EconPapers)
JEL-codes: C23 G30 L25 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2008-11-25
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Institutional Ownership and Returns on Investment (2013)
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