Does common institutional ownership affect systemic risk of non-financial firms? Evidence from China

Xiao-Lin Li, Jiawei Hao and Liang Liu

Economic Analysis and Policy, 2025, vol. 87, issue C, 235-255

Abstract: Using data on common institutional ownership (CIO) and systemic risk of Chinese listed manufacturing firms from 2010 to 2022, our paper investigates the effect of CIO on systemic risk of non-financial firms (NFFs). We find that CIO is positively associated with the systemic risk of NFFs. We identify two channels through which CIO influences NFFs’ systemic risk: exacerbating risk accumulation through firm manipulation and increasing risk interconnectedness among firms. Our results are validated by several robustness tests. Heterogeneity analysis indicates that the effect of CIO on systemic risk is more pronounced in NFFs with lower stock liquidity, lower transparency, lower product market competition, and higher financing constraints. Finally, we find that CIO networks propagate individual firms’ tail risk and thereby form a systemic risk danger. Our paper presents policy recommendations for regulators, stressing the need to effectively manage the development of CIO to mitigate its potential adverse effects, especially amid the Chinese government’s promotion of institutional investors in capital markets.

Keywords: Common institutional ownership; Systemic risk; Non-financial firms; Manipulation collusion; Risk interconnectedness (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:87:y:2025:i:c:p:235-255

DOI: 10.1016/j.eap.2025.06.005

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