Does the influence of institutional investors depend on the institutional framework? An international analysis

Abstract

This article analyses the effect of institutional ownership in alleviating or exacerbating the conflicts of interests among stakeholders in different legal and institutional frameworks. This analysis is carried out based on two characteristics: the concentration of power of institutional ownership and the identification of the main types of institutional investors. In common law countries, consistent with the convergence and entrenchment hypotheses, we find a U-shape relation between ownership structure and firm performance. In civil law countries, consistent with the collusion and contest theories, we find an inverted U-shape relation. We also find that when institutional investors are classified as pressure resistant and pressure sensitive according to the strength of their ties with managers, pressure-resistant investors, who operate more independently, are the most capable of improving the value of the firm.