Institutional investors and corporate investment

Cristina Cella

Finance Research Letters, 2020, vol. 32, issue C

Abstract: Using investors’ trading horizons to capture their incentives to collect information and monitor management's decisions, this paper shows that an increase in the ownership stake held by long-term institutional investors is associated with a subsequent decrease in real investment precisely in firms that invest too much. In support of the monitoring hypothesis, we show that results are driven by the purchases of long-term investors, while quasi-indexers and short-term investors have no influence on investment. We address the potential problem of endogeneity using the inclusion of a firm to the S&P 500 Index as an exogenous shock to institutional holdings.

Keywords: Institutional ownership; Investors’ investment horizons; Over-investment; Under-investment; Management monitoring (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:32:y:2020:i:c:s1544612319301801

DOI: 10.1016/j.frl.2019.04.026

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