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Institutional Ownership and Corporate Investment Performance
Author(s) -
Fung Scott,
Tsai ShihChuan
Publication year - 2012
Publication title -
canadian journal of administrative sciences / revue canadienne des sciences de l'administration
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 48
eISSN - 1936-4490
pISSN - 0825-0383
DOI - 10.1002/cjas.1232
Subject(s) - corporate governance , institutional investor , incentive , shareholder , business , investment (military) , control (management) , capital expenditure , accounting , compensation (psychology) , capital (architecture) , capital investment , monetary economics , finance , market economy , economics , politics , political science , law , psychology , management , psychoanalysis , archaeology , history
This paper examines the role of institutional investors in improving firm performance through the channel of corporate investment decisions. We find that the interaction effect between institutional ownership and capital expenditures is significantly related to firm performance. We examine this relationship for different types of institutional investors, and find that investment advisors are most effective monitors in improving firm performance through corporate investment. Moreover, we find that the monitoring role of institutional investors becomes more important when internal governance is weak. Institutional ownership and other forms of corporate governance mechanisms (including CEO incentive compensation and control, shareholder right provisions, and board of director monitoring) operate as substitutes, rather than complements, in improving capital expenditure decisions. Copyright © 2012 ASAC. Published by John Wiley & Sons, Ltd.