Does institutional ownership increase stock return volatility? Evidence from Vietnam

The literature on institutional ownership and stock return volatility often ignores small emerging countries. However, this issue is more profound, due to the large size of institutional investors and small stock market size, in emerging equity markets. This paper examines the effects of the institutional ownership on the firm-level volatility of stock returns in Vietnam. Our data cover most of non-financial firms listed on the Ho Chi Minh City stock exchange for the period 2006–2012. Employing different analysis techniques for panel data and controlling for possible endogeneity problems, our empirical results suggest that institutional investors stabilize the stock return volatility. Moreover, we document that: i) the stabilizing effect of institutional investor ownership is higher in dividend paying firms, and ii) if firms are paying out more dividends, this stabilizing effect is greater. Our results outline the important role of institutional investors in maintaining the stability in emerging stock markets.     

Does foreign institutional ownership motivate firms in an emerging market to increase voluntary disclosure? Evidence from Taiwan

This study examines the relationship between foreign institutional ownership and voluntary disclosure in an emerging market. By exploiting a unique dataset of daily foreign investment flow and ownership data from Taiwan, this paper examines whether foreign ownership is associated with the likelihood of holding conference calls and investigates whether conference calls are informative to foreign market participants. After controlling for other characteristics of a firm??s information environment, we find that the decision to hold conference calls is positively associated with foreign institutional ownership. We also provide evidence that the trading turnover by foreign institutional investors immediately increases after the conference calls, indicating that conference calls are informative for foreign institutional investors. Our results are robust, after controlling for endogeneity.     

Does institutional ownership matter for international stock return comovement?

We study the link between international stock return comovements and institutional investment. We test whether the rise of institutional ownership has increased cross-country correlations and decreased cross-industry correlations. Using stock-level institutional holdings across 45 countries during the 2001–2010 period, we find that industry and global factors are relatively more important the country factors in explaining stock return variation among stocks with higher institutional ownership. Industry diversification strategies are more beneficial than country diversification strategies for stocks with high institutional ownership. We show that cross-border portfolio investment is a powerful force of international capital market integration and convergence of asset prices.     

Does institutional activism increase shareholder wealth? Evidence from spillovers on non-target companies

This paper presents evidence of the shareholder wealth effect of institutional activism using its spillovers on non-target companies. The spillovers are instructive because they are a response to an exogenous shock and thus create an environment to conduct a clean event study. In particular, we examine the spillover effects of the first target announcement of the Korea Corporate Governance Fund. As the very first sign of institutional activism in the country, this announcement creates an expectation of similar governance efforts even in non-target companies, especially in those companies whose governance is currently poorer and thus the scope for future activism is greater. Consistent with institutional activism contributing to shareholder wealth, we find that, among non-targets, those firms granting fewer rights to outside shareholders experience a more positive stock price reaction. Further analysis lends additional support to the positive wealth effect of institutional activism.     

Are there monitoring benefits to institutional ownership? Evidence from seasoned equity offerings

We provide new evidence on the monitoring benefits from institutional ownership by analyzing the impact of institutional ownership on stock price and operating performance following seasoned equity offerings, a setting where the effects of monitoring are likely to be especially important. We find that announcement returns are positively and significantly related to total and active institutional ownership levels and concentration. Post-issue stock returns are positively and significantly related to the contemporaneous post-issue changes in total and active institutional ownership and the concentration of their shareholdings. Operating performance improvements are also related to institutional monitoring in the one, two, and three years following the equity issue. Our results continue to hold even after accounting for the possibility that institutional investors have an informational advantage that enables them to identify and invest in subsequently better performing firms. We also empirically eliminate the possibility that our findings are driven by institutions buying past winners and selling past losers as a way to window-dress their portfolio holdings.     

Does governance travel around the world? Evidence from institutional investors

We examine whether institutional investors affect corporate governance by analyzing portfolio holdings of institutions in companies from 23 countries during the period 2003–2008. We find that firm-level governance is positively associated with international institutional investment. Changes in institutional ownership over time positively affect subsequent changes in firm-level governance, but the opposite is not true. Foreign institutions and institutions from countries with strong shareholder protection play a role in promoting governance improvements outside of the U.S. Institutional investors affect not only which corporate governance mechanisms are in place, but also outcomes. Firms with higher institutional ownership are more likely to terminate poorly performing Chief Executive Officers (CEOs) and exhibit improvements in valuation over time. Our results suggest that international portfolio investment by institutional investors promotes good corporate governance practices around the world.     

Does auditor choice matter to foreign investors? Evidence from foreign mutual funds worldwide

This study explores whether a firm’s auditor choice affects its ability to access foreign equity capital. Using the equity holdings of 35,665 foreign mutual funds from 30 countries for the period 1998–2009, we find evidence that appointing a Big 4 auditor is associated with the increased level of foreign mutual fund ownership in firms. Our results are robust when conditioned on firm-level information asymmetries, country-level information disclosure quality, and when employing the Enron–Andersen fiasco as the natural experiment. Furthermore, appointing Big 4 auditors is particularly important for firms to attract foreign capital during the 2008 global financial crisis.     

Does stable ownership create value? Evidence from the global financial crisis

We investigate the value of stable ownership for a sample of European firms using the global financial crisis as an exogenous shock and pre-and post-crisis years as benchmark periods. Consistent with the argument that stable ownership allows managers to focus on the creation of long-term value, we find that stable ownership resulted in higher stock returns and a higher market-to-book ratio during the crisis. This positive effect of stable ownership was not reversed after the crisis. Stable institutional blockholdings were more valuable in countries with weaker investor protection. However, the positive effect does not apply to firms in which a family is the largest blockholder. Finally, we also find that ownership stability was associated with a higher level of investments, illustrating that stable ownership affects real corporate decisions.

     

Does bank ownership affect lending behavior? Evidence from the Euro area

We analyze the differences in lending policies across banks characterized by different types of ownership, using micro-level data on Euro area banks during the period 1999–2011 to detect possible variations in bank lending supply responses to changes in monetary policy. Our results identify a general difference between stakeholder and shareholder banks: following a monetary policy contraction, stakeholder banks decrease their loan supply to a lesser extent than shareholder banks. A detailed analysis of the effect among stakeholder banks reveals that cooperative banks continued to smooth the impact of tighter monetary policy on their lending during the crisis period (2008–2011), whereas savings banks did not. Stakeholder banks’ propensity to smooth their lending cycles suggests that their presence in the economy has the potential to reduce credit supply volatility.     

Does control‐ownership divergence impair market liquidity in an emerging market? Evidence from China

This paper examines how institutional characteristics of emerging economies influence the effect of control‐ownership divergence on market liquidity. We find that the divergence is negatively associated with liquidity and that this negative relationship is more pronounced in firms with more severe agency problems and information asymmetry. We argue that in an emerging market, the negative effect of the divergence on liquidity is worsened by state ownership and poorer shareholder protection, both of which result in more severe agency conflicts; we also find, however, that this effect is alleviated by the NTS reform, which aligns the interest of different shareholders.     

Is conservative reporting attractive to foreign institutional investors? Evidence from an emerging market

This study investigates the relation between conservative reporting and foreign institutional ownership using a unique dataset of firms in Turkey. In doing so, we distinguish between foreign funds and corporations. Contrary to prior findings, our analysis shows that conservative reporting is not necessarily a desirable accounting feature for foreign institutional investors. We also find that the interplay between conservative reporting and ownership is significantly different between foreign funds and corporations. The estimated negative relation holds only for foreign funds. Further analysis reveals that foreign funds do not find conservative reporting desirable in low-asymmetric information firms and reduce ownership with greater accounting conservatism in such firms. The analysis sheds significant lights on the relevance of conservative reporting in alleviating the negative consequences of asymmetric information.     

Does FinTech development facilitate firms' innovation? Evidence from China

This study examines the impact of financial technology (FinTech) development on firms' innovation. Using Chinese listed firms' panel data from 2011 to 2021 and the FinTech indicators we constructed, we find that FinTech development significantly facilitates firms' innovation by alleviating their information asymmetry and financing constraints. This finding continues to hold after a series of robustness tests and endogeneity discussions. Moreover, we find that the effect of FinTech development on innovation is more pronounced for non-state-owned firms, firms in the central region, and high-tech firms. These results offer important policy implications as they demonstrate the crucial role of FinTech in the high-quality development of the real economy.     

How does institutional investors' information acquisition inhibit share pledging? Evidence from China

This study investigates whether and how institutional investors' information acquisition affects controlling shareholder's share pledging. Taking a unique data of institutional investors' corporate site visits in China, we find that institutional investors' corporate site visits significantly inhibit controlling shareholder's share pledging. This effect is robust to a series of robustness checks, including controlling for endogeneity concerns, propensity score matching method, alternative model specifications, and alternative measures of the independent variable. We then provide evidence that the negative relation between institutional investors' corporate site visits and controlling shareholder's share pledging is more pronounced for listed firms with less efficient information environment and weaker corporate governance. Further analysis indicates that the negative relation is also more pronounced when controlling shareholders are under higher margin call pressure and when the visiting institutional investors consist of more fund companies. Overall, our study is the first to provide direct evidence of the governance mechanism of financial intermediaries on shareholders' pledging decisions.     

Does country risks predict stock returns and volatility? Evidence from a nonparametric approach

We use the k-th order nonparametric causality test at monthly frequency over the period of 1984:1–2015:12 to analyze whether aggregate country risk, and its components (economic, financial and political) can predict movements in stock returns and volatility of eighty-three developed and developing economies. The nonparametric approach controls for the existing misspecification of a linear framework of causality, and hence, the weak evidence of causality obtained under the standard Granger tests cannot be relied upon. When we apply the nonparametric test, we find that, while there is no evidence of predictability of squared stock returns barring one case, at times, there are nearly 50 percent of the countries where the aggregate risks and its components tend to predict stock returns and realized volatility.     

Does political pressure matter in bank lending? Evidence from China

Using provincial data from China between 2002 and 2011, we find substantial evidence indicating a positive association between the growth of bank loans issued by commercial banks and the political pressures faced by provincial leaders. This association is particularly true for state‐owned banks, which are much more politically pressurized than others, but is relatively attenuated in provinces with a more developed banking sector. We also find that bank loans issued under greater political pressures are less commercially oriented and have lower quality. Our findings are robust to a variety of sensitivity analyses and alternative measures of political pressure. Overall, our study contribute to a growing literature emphasizing the role of the political incentives of government officials in fuelling economic growth through credit allocation.     

Do foreign banks increase competition? Evidence from emerging Asian and Latin American banking markets

In this paper we examine the impact of foreign bank penetration on the competitive structure of domestic banking sectors in host emerging economies. We focus our analysis on Asia and Latin America during the period 1997-2008. Using bank-level panel data to identify foreign banks and to estimate measures of banking competition, we are able to provide robust empirical evidence that an increase in foreign bank penetration enhances competition in these host countries’ banking sectors. We find that this positive foreign bank penetration and banking competition link is associated with a spillover effect from foreign banks to their domestic counterparts. This spillover effect becomes stronger when more efficient and less risky foreign banks enter into less concentrated host country markets. We also find that the spillover effect is greater when foreign banks enter in the form of ‘de novo penetration’ than through mergers or acquisitions of domestic banks (‘M&A penetration’).     

How important is the term structure in implied volatility surface modeling? Evidence from foreign exchange options

We claim that previously proposed parametric specifications that linearly approximate the term structure of the implied volatility surface (IVS) in option prices fail to capture important information regarding the expectations of market participants. This paper proposes a parametric specification for describing the IVS that allows flexible modeling of the term structure through a Nelson and Siegel (1987) factorization, recently proposed by Diebold and Li (2006) in the context of yield curve modeling. The specification is tested on implied volatilities from the over-the-counter foreign exchange options market, where contracts with long expiries are actively traded and thus the term structure dimension of the surface should be very important. We first show that the proposed volatility specification can consistently and remarkably improve our ability to describe the surface on any given day. We then establish the economic relevance of the incremental information captured by our proposed specification by showing that it can produce more accurate forecasts of implied volatility that can support long-term profitable trading strategies in the absence of transaction costs.     

Do foreign institutional investors destabilize China’s A-share markets?

This paper investigates the effect of foreign institutional investors on the stability of Chinese stock markets. Previous literature views this investor group as destabilizing feedback traders. We use the abolition of ownership restrictions on A shares as a natural experiment. There is strong evidence that foreign institutions have a stabilizing effect on Chinese stock markets and contribute to market efficiency. This finding is robust across exchanges, sample periods, size quintiles and alternative model specifications. By contrast, domestic investors appear to engage in positive feedback trading. Our results have important implications for market regulation.     

Do different forms of government ownership matter for bank capital behavior? Evidence from China

This study attempts to reconcile the conflicting theoretical predictions regarding how government ownership affects bank capital behaviour. Using a unique Chinese bank dataset over 2006–2015 we find that government-owned banks have higher target capital ratios and adjust these ratios faster compared to private banks, supporting the ‘development/political’ view of the government’s role in banking. This effect is stronger for local government-owned and state enterprise-owned banks than for central government-owned banks. We also find that undercapitalized government-owned banks increase equity while undercapitalized foreign banks contract assets and liabilities as their respective main strategy to adjust their capital ratios.