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Institutional Ownership and Firm Performance: Evidence from Finland

Prasad Sankar Bhattacharya () and Michael Graham

No 2007_01, Accounting, Finance, Financial Planning and Insurance Series from Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance

Abstract: This paper investigates the relationship between different classes of institutional investors and firm performance. Using industry level data from Finland, which is characterized by various institutional investors who own multiple ownership stakes in different firms across a broad spectrum of industries, the paper exhibits two novelties. First, unlike previous studies which treated institutional investors as a monolithic group, we segment them in classes. Second, we recognize the joint determination of firm performance and institutional ownership. We account for this issue in the context of a system of equations, using three stage least squares methodology. The empirical results suggest a significant two-way feedback between firm performance and institutional equity ownership. However, this effect is not symmetric. We find that institutional investors with likely investment and business ties with firms have adverse (negative) effect on firm performance and the impact is very significant in comparison to the negative effect of firm performance on institutional ownership.

Keywords: Institutional ownership; Firm performance; Joint determination; Three stage least squares technique; System of equations; Two-way feedback. (search for similar items in EconPapers)
JEL-codes: G32 L20 (search for similar items in EconPapers)
Date: 2007-01-07
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