Resource slack and institutional ownership: A DuPont analysis in an emerging market

Paulo Victor G. Novaes, Wagner Moura Lamounier, Luiz Claudio Louzada, Valéria Gama Fully Bressan and Laura Edith Taboada Pinheiro

Research in International Business and Finance, 2025, vol. 79, issue C

Abstract: This study examines resource slack (asset turnover, profit margin, leverage deviations from industry norms) on institutional ownership in Brazilian firms from 2010 to 2023. We document that, on average, institutional investors are drawn to firms with lower resource slack, especially in asset turnover, for operational stability and comparability. Similar preferences are observed when examining institutions that prioritize stronger relationships with firms, as evidenced by institutional stockholdings exceeding 5 % (‘relevant’), long-term (‘dedicated’), and voting shares (‘voting’). Moreover, while mutual funds prefer firms with lower resource slack, indicating conservative strategies focused on predictability, hedge funds target firms based on value orientations, viewing resource slack as a signal of potential performance gains. Our results are subjected to a comprehensive battery of endogeneity tests, including the use of instrumental variables and selection bias tests. In addition, we document the effect of a regulatory change on institutional ownership. The findings contribute to research on shareholder governance by highlighting the heterogeneity among institutional investors based on their incentives.

Keywords: Investment Funds; DuPont Analysis; Resource Slack; Trading Strategy (search for similar items in EconPapers)
JEL-codes: G11 G24 G30 G32 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:79:y:2025:i:c:s027553192500323x

DOI: 10.1016/j.ribaf.2025.103067

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