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Institutional Owners and the Return on Investments

Author

Listed:
  • Bjuggren, Per-Olof

    (JIBS and CESIS)

  • Eklund, Johan E.

    (JIBS and CESIS)

  • Wiberg, Daniel

    (JIBS and CESIS)

Abstract

Examining a large number of Swedish listed firms, this paper analyses how institutional owners affects the investment decisions and firm performance. During the last decades the ownership structure of Swedish firms has undergone dramatic changes: institutional and foreign investors have been increasing their stakes, whereas Swedish households have decreased in importance. Controlling owners, often founding families, remain in control by resorting to an extensive use of dual-class shares. To measure investment performance Mueller and Reardon’s (1993) marginal q is used. Marginal q measures the ratio of the return on investments to the cost of capital. We find that institutional and foreign owners positively influence the performance of firms. Furthermore a non-liner relation between ownership concentration and performance is found. This is consistent with positive incentive effects and negative entrenchment effects. The practice of dual-class shares which separate cash-flow rights and control rights is also found to be an important determinant of firm performance.

Suggested Citation

  • Bjuggren, Per-Olof & Eklund, Johan E. & Wiberg, Daniel, 2007. "Institutional Owners and the Return on Investments," Working Paper Series in Economics and Institutions of Innovation 96, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    • Handle: RePEc:hhs:cesisp:0096
    as

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    References listed on IDEAS

    as
    1. Marc Goergen & Luc Renneboog, 1999. "Strong Managers and Passive Institutional Investors in the UK," Working Papers 1999.21, Fondazione Eni Enrico Mattei.
    2. Peter Hogfeldt, 2004. "The History and Politics of Corporate Ownership in Sweden," NBER Working Papers 10641, National Bureau of Economic Research, Inc.
    3. Steen Thomsen & Torben Pedersen, 2000. "Ownership structure and economic performance in the largest european companies," Strategic Management Journal, Wiley Blackwell, vol. 21(6), pages 689-705, June.
    4. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    marginal q; investment returns; institutional owners;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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