Institutional ownership and the investment-cash flow sensitivity Evidence from India

Chacko Jacob () and Jijo Lukose P.J. ()
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Chacko Jacob: Indian Institute of Management, Kozhikode
Jijo Lukose P.J.: Indian Institute of Management, Kozhikode
Authors registered in the RePEc Author Service: Jijo Lukose PJ ()

No 329, Working papers from Indian Institute of Management Kozhikode

Abstract: Weexaminewhetherinstitutionalinvestorownershipinfluencestheinvestment-cashflowsensitivityinQmodelregressions.Inordertoempiricallytestthisrelationship,weaugmenttheQmodelofinvestmentspecificationbyaddinganinteractiontermbetweencashflowandin-stitutionalinvestorownership.Ifinstitutionalinvestorownershipreducesinvestment-cashflowsensitivity,thenthecoefficientoftheinteractiontermshouldbenegative.Weestimatetheequa-tionusingtheArellano-BonddifferenceGMMmethodtomitigatethebiasduetomeasurementerror in Q modelregressions.Oursample consists of manufacturingfirms listed on theNationalStockExchange(NSE)overtheperiod2001-2016.Theresultsshowthatinstitutionalinvestorownershipreducesinvestmentcashflowsensitivity.Thesereductionsareobservedtobemorepronouncedinfirmswithhigheragencycosts.Weinterpretthisevidenceassuggestingthatinstitutionalinvestorholdingsmitigateagencyissueslikeover-investmentoffreecashflowandtherebyimprove firm governance.

Keywords: Institutionalownership; Foreigninvestors; Investment; Investmentcashflowsen-sitivity; Capitalmarketimperfections; Agencyproblems; Monitoring (search for similar items in EconPapers)
Pages: 28 pages
Date: 2019-03
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