Ratio Working Papers,
The Ratio Institute

Abstract: This paper examines how institutional investors influence investment decisions and returns on investment. To measure investment performance we used a measure of marginal q which measures the ratio of the investment returns to cost of capital. Institutional owners are found to have had a positive effect on performance, with a marginally diminishing effect of institutional ownership concentration. We used longitudinal data on Swedish firms for the period 1999-2005, during which their ownership structure underwent dramatic changes: Institutional investors increased their ownership share, while ownership by Swedish households decreased. However, controlling owners - often founding families - remained in control by resorting to extensive use of dual-class shares, control rights, which separate from cash-flow. This was an important determinant of firm performance, eradicating the positive influence of institutional ownership.

Keywords: Corporate governance; institutions; ownership; performance; Tobin’s q; marginal q

JEL-codes: C23; G30; L25

30 pages, July 30, 2013

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pob_je_dw_institutional_ownership_wp208.pdf  

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