Institutional Investors and Corporate Investment

Cristina Cella ()
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Cristina Cella: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

No 373, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

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)
JEL-codes: B20 G31 G32 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2019-04-01
New Economics Papers: this item is included in nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0373

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