Working Paper No. 208. Bjuggren, Per-Olof, Eklund, Johan, Wiberg, Daniel (2013). ”Institutional Ownership and Returns on Investment”.
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.
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