Scandinavian Working Papers in Economics

Ratio Working Papers,
The Ratio Institute

No 208: Institutional Ownership and Returns on Investment

Per-Olof Bjuggren (), Johan Eklund () and Daniel Wiberg
Additional contact information
Per-Olof Bjuggren: Ratio & JIBBS, Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden
Johan Eklund: Swedish Entreprenurship Forum,
Daniel Wiberg: Swedish Ministry of Finance.

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 PDF-file 

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