Financial strength information and institutional investor demand: Evidence from India

V. Gopikumar, Smitha Nair, S Sreevathsava and Raja Sreedharan V

Cogent Economics & Finance, 2019, vol. 7, issue 1, 1623751

Abstract: In this paper, we examine whether foreign institutional investors (FII) and mutual funds (MF) show a higher preference for fundamentally stronger firms. We employ Pitroski’s F score and its constituents (profitability, efficiency, and leverage) to measure the fundamental strength of firms. Further, we examine the preferences of FIIs and MFs by conditioning on size and book-to-market ratio. Overall, the results indicate that both types of institutional investors prefer firms with higher expected profitability and are willing to take higher risks. FIIs show a higher preference for riskier firms and MFs prefer firms with higher profitability.

Date: 2019
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DOI: 10.1080/23322039.2019.1623751

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