This paper seeks to determine if institutional investors influence stock repurchases. Specifically, this study tests whether institutional investors encourage stock repurchases in firms with high information asymmetry. Firm and year fixed effect regressions examining the effect of changes in institutional investor levels to subsequent changes in stock repurchase levels are used. For robustness, regressions are run using difference-GMM regressions and regressions for different time periods on the same relationship. I find that increased institutional ownership leads to increased stock repurchases and this relationship is stronger in firms with higher information asymmetry. Results indicate that institutional investors encourage management to increase repurchases so as to exploit their informational advantage over less informed investors about the true value of the firm. Institutions are the dominant force in U.S. stock ownership. The results in this paper indicate that institutional investors are using their informational advantage in firms that are difficult to value in an attempt to boost their return at the expense of other less informed shareholders.
This paper seeks to determine if institutional investors influence corporate research and development (R&D) investment policies. Specifically, this study tests whether institutional investors encourage R&D investment in firms with higher firm stock liquidity. Firm and year fixed effect regressions examining the effect of changes in institutional investor levels to subsequent changes in R&D investment levels are used. For robustness, difference-GMM regressions and regressions for different time periods are ran on the same relationship. I find that increased institutional ownership leads to increases in R&D investment, especially in firms with higher firm stock liquidity. Results support the assertion that the presence of institutional shareholders encourages management to invest in R&D for long-term benefits in lieu of short-term profits. Institutions have become the foremost power in U.S. stock ownership. The results in this paper indicate that institutional investors can deter management from investing in R&D at a sub-optimal level, thus benefiting all shareholders.
This paper seeks to determine if institutional investors influence corporate research and development (R&D) investment policies by encouraging R&D investment in firms with high information asymmetry. The effect of changes in institutional investor levels to subsequent changes in R&D investment levels are examined using firm and year fixed effect regressions and difference-GMM regressions. Increased institutional ownership leads to increased R&D investment and this relationship is stronger in firms with higher information asymmetry. Institutional investors encourage higher R&D investment primarily in firms with high information asymmetry indicating they have an advantage in discerning the value of R&D investments in such firms. Institutions are an important and increasing force in U.S. stock ownership. The results in this paper indicate that institutional investors have an advantage in discerning the value of R&D investments in firms with high information asymmetry. The presence of institutional investors encourages the management of such firms to make long-term investments in R&D.
This paper seeks to determine if institutional investors influence corporate payout policies. Specifically, this study tests whether institutional investors encourage higher payouts in firms with higher free cash flow and poor growth opportunities. Firm and year fixed effect regressions examining the effect of changes in institutional investor levels to subsequent changes in payout levels are used. For robustness, difference-GMM regressions and regressions for different time periods are performed on the same relationship. Increased institutional ownership leads to increases in total payouts, especially in firms with high free cash flow and poor investment opportunities (low q). According to agency-based free cash flow theory, stockholders should prefer that the management of firms with higher free cash flow and poor investment opportunities increase payouts to shareholders. The results indicate that institutional shareholders reduce agency costs by encouraging management to raise payouts, thus benefiting institutional investors and non-institutional shareholders.
This study tests whether institutional investors encourage R&D investment in firms with potential agency problems. Firm and year fixed effect regressions and difference-GMM regressions are used to examine the effect of changes in institutional investor levels to subsequent changes in R&D investment levels. Increased institutional ownership leads to increased R&D investment and this relationship is stronger in firms more susceptible to agency problems. Agency-based free cash flow theory predicts that institutional investors will encourage R&D investment in firms with good investment opportunities, but they will not encourage R&D investment simply because a firm has higher free cash flow. My results support this prediction indicating that institutional investors help to control agency problems in R&D investment decisions. The results in this paper indicate that this may lead to a decrease in agency costs in R&D decisions, thus benefiting institutional and non-institutional shareholders.
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