The Colors of Investors' Money: The Role of Institutional Investors Around the World
Posted: 24 Jul 2007
We study the role of institutional investors around the world using a comprehensive data set of equity holdings from 27 countries. Domestic, U.S.-, and non-U.S.-based foreign institutions hold comparable shares of non-U.S. corporations. We find that all institutional investors have a strong preference for the stock of large firms and firms with strong governance indicators, while foreign institutions tend to overweight firms that are cross-listed in the U.S. and members of the Morgan Stanley Capital International World Index. We find that firms with higher ownership by foreign and independent institutions (unlike other institutions) have higher firm valuations, better operating performance, and lower capital expenditures. Our results indicate that foreign and independent institutions, with potentially fewer business ties to firms and freer from management influence, are involved in monitoring corporations worldwide.
Keywords: Institutional Investors, Monitoring, International Capital Markets
JEL Classification: G15, G20, G32
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