The Effects of Institutional Investors on Firm Outcomes: Empirical Pitfalls of Quasi-Experiments Using Russell 1000/2000 Index Reconstitutions

Purpose The purpose of this paper is to examine the main and joint effects of politically connected firms (PCFs) and institutional monitoring on the cost of debt. Design/methodology/approach Based on a panel data set of Malaysian politically connected and non-politically connected listed firms from 2002 till 2015, the author performs regression analysis. To address the issue of self-selection, the PCFs’ equation is estimated, following Lennox et al. (2012) and Heckman (1979). Findings This paper finds that PCFs are associated with higher cost of debt. However, the positive association between PCFs and the cost of debt is attenuated by higher institutional ownership (IO). Further test reveals that monitoring by institutional investors is heterogeneous from the perspective of domicile. Local institutional investors are associated with lower cost of debt, particularly in PCFs, while foreign institutional investors are associated with higher cost of debt. Originality/value The author shows that firm outcome, i.e. cost of debt in emerging markets can differ from advanced markets due to different institutional setting. Additionally, different types of political ties can produce different firm outcomes: GLCs are associated with lower cost of debt as opposed to connected firms based on personal ties. However, agency problems in PCFs can be alleviated through effective institutional monitoring. Consistent with geographical proximity theory, local institutional investors play a more effective monitoring role in Malaysian listed firms, thus lowering cost of debt. Overall, the results contribute to deeper understanding on variation in firm outcomes between emerging and advanced markets.

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Institutional Investors on the Securities Market

Voprosy Ekonomiki ◽

10.32609/0042-8736-2003-8-95-101 ◽

2003 ◽

pp. 95-101

Author(s):

O. Khmyz

Keyword(s):

Financial Crisis ◽

Capital Market ◽

Hedge Funds ◽

Institutional Investors ◽

Securities Market ◽

Main Role ◽

Investment Funds ◽

Investment Process ◽

The Capital Market

Acording to the author's opinion, institutional investors (from many participants of the capital market) play the main role, especially investment funds. They supply to small-sized investors special investment services, which allow them to participate in the investment process. However excessive institutialization and increasing number of hedge-funds may lead to financial crisis.

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Pricing models of shares of Russian companies and their practical application

Voprosy Ekonomiki ◽

10.32609/0042-8736-2019-3-48-76 ◽

2019 ◽

pp. 48-76 ◽

Cited By ~ 1

Author(s):

Alexander E. Abramov ◽

Alexander D. Radygin ◽

Maria I. Chernova

Keyword(s):

Stock Market ◽

Institutional Investors ◽

Factor Model ◽

Investment Strategies ◽

Pricing Models ◽

Foreign Portfolio Investment ◽

Market Portfolio ◽

Stock Market Performance ◽

Long Time ◽

Russian Stock Market

The article analyzes the problems of applying stock pricing models in the Russian stock market. The novelty of the study lies in the peculiarities of the methodology used and the substantive conclusions on the specifics of the influence of fundamental factors on the pricing of shares of Russian companies. The study was conducted using its own 5-factor basic pricing model based on a sample of the most complete number of issues of shares of Russian issuers and a long time horizon, from 1997 to 2017. The market portfolio was the widest for a set of issuers. We consider the factor model as a kind of universal indicator of the efficiency of the stock market performance of its functions. The article confirms the significance of factors of a broad market portfolio, size, liquidity and, in part, momentum (inertia). However, starting from 2011, the significance of factors began to decrease as the qualitative characteristics of the stock market deteriorated due to the outflow of foreign portfolio investment, combined with the low level of development of domestic institutional investors. Also identified is the cyclical nature of the actions of company size and liquidity factors. Their ability to generate additional income on shares rises mainly at the stage of the fall of the stock market. The results of the study suggest that as domestic institutional investors develop on the Russian stock market, factor investment strategies can be used as a tool to increase the return on investor portfolios.

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