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Institutional ownership and firm operating performance Evidence from India

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Listed:
  • Chacko Jacob

    (Indian Institute of Management, Kozhikode)

  • Jijo Lukose P.J

    (Indian Institute of Management, Kozhikode)

Abstract

We examine whether, on average, positive (negative) changes in institutional investor owner-ship result in positive (negative) changes in firm operating performance. Monitoring hypothesispredicts that changes in institutional investor ownership would be positively related to operatingperformance. Arguments based on short-termism also predict that increases (decreases) in own-ership will increase (decrease) in operating performance. We test this prediction by regressinglarge changes in firm operating performance on large changes in institutional investor ownershipand other control variables. Our empirical analysis is based on firm-level data of NSE listed firmsduring the period 2001 to 2016. To correct for endogeneity due to selection bias (as institutionalinvestors do not invest in firms randomly), we also use a treatment effect model. We find apositive relationship between large increases in institutional investor ownership and changes inoperating performance. This result is significant across both domestic and foreign institutionalinvestors. However, further studies are required to establish whether these improvements inoperating performance are a result of a their myopic investment orientation or due to improved monitoring

Suggested Citation

  • Chacko Jacob & Jijo Lukose P.J, 2019. "Institutional ownership and firm operating performance Evidence from India," Working papers 331, Indian Institute of Management Kozhikode.
    • Handle: RePEc:iik:wpaper:331
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