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The IUP Journal of Corporate Governance

Institutional Investors' Heterogeneity and Firm Performance: Evidence from Emerging Economies

Article Details

Pub. Date	: July, 2023
Product Name	: The IUP Journal of Corporate Governance
Product Type	: Article
Product Code	: IJCG010723
Author Name	: Harsh Gautam, Archana Singh and Girish Chandar Maheshwari
Availability	: YES
Subject/Domain	: Management
Download Format	: PDF Format
No. of Pages	: 34

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Abstract

The study assesses the impact of institutional investor heterogeneity on firm performance in emerging economies. The sample consists of a panel dataset of 219 firms listed on the major stock exchanges of five leading emerging economies in the world (Brazil, Russia, India, China, and South Africa-BRICS). The findings reveal that institutional investors significantly influence the performance of firms in BRICS countries. Based on stake size, large institutional investors are positively related to firm performance, whereas small investors negatively impact firm performance. On the other hand, based on the business relationship with the investee firm, pressure-sensitive investors negatively impact firm performance, whereas pressure-insensitive investors are only weakly related to firm performance. Further, another category of activist pressure-insensitive institutional investors is strongly associated with firm performance. In light of limited studies in emerging economies, the study's findings seek to provide new and original empirical evidence on the monitoring role of institutional investors in emerging economies.

Introduction

In the past two decades, corporations globally have witnessed exponential growth in institutional ownership. Institutional investors hold more than half of the corporate equity in developed countries such as Canada, the US and the UK (Ding et al., 2021). A similar trend is also observed in emerging and developing economies like India, China and Brazil, among others, where such investors are now directing their investments due to the rapid growth and profitability offered by these economies (Martinez-Ferrero and Lozano, 2021; Yildiz, 2021; and Badhania et al., 2022). Unlike retail investors, institutional investors are larger in size, possess significant expertise in managing their portfolio and also have the ability to monitor firm management (Ferreira and Matos, 2008). Consequently, in the wake of their growing influence in the global capital markets and especially in emerging countries, the issue regarding their role in promoting good governance has become a topic of concern. Berle and Means (1932) argued

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