The role of institutional investors in the inventory and cash management practices of firms in Asia

This paper examines the role of a particular class of institutional investors, domestic and foreign banks, in corporate decisions that have liquidity implications such as inventory and cash management. Using a sample of 256 non-financial listed firms in six Asian countries over the period of 2002-2005, this paper shows that foreign banks improve inventory and cash management practices, due to their superior monitoring of the managers. The disproportionate numbers of the institutional investors across industrial sectors in these Asian countries seem to suggest that some industrial sectors have stable demand of their products, such as in consumer goods sector, which is an attraction, for these institutional investors. Furthermore, the paper finds that forward-looking government policies are crucial to entry of these institutional investors in the developing countries. The research findings have implications for board structure and corporate governance standards.