Heterogeneous investors and deterioration of market integrity: an analysis of market manipulation cases

Abstract

Purpose The purpose of this study is to empirically test the role of heterogeneous investor’s, i.e. institutional investors, individuals and insiders in deteriorating market integrity. Design/methodology/approach The research is conducted by examining the participants of 244 market manipulation cases of East Asian emerging and developed financial markets for the period of 2001–2016. The empirical analysis is conducted using panel logistic regression. Findings The results show that firms with higher institutional ownership are most likely to be manipulated in both markets. Insiders are potential manipulators in developed markets and deteriorate market integrity. In contrast, individual investors behave differently in both markets. In developed markets, firms with high individual ownership are less likely to be manipulated while in emerging markets, firms with individual ownership are more prone to manipulation because of substantial participation by individual investors which invites manipulative practices. Additionally, the authors found that firms with a higher proportion of passive institutional investors are less likely to be manipulated in emerging markets. Originality/value This study contributes to the existing literature by identifying the potential manipulators in the financial markets who deteriorate market integrity with the additional focus of subdivision of institutional investors as active institutional investors and passive institutional investor. The findings are helpful for regulators in designing policies to ensure market integrity and to enforce the role of institutional investors and insiders.

Institutional investors and cost of capital: The moderating effect of ownership structure

“…Although previous studies have focused on the investment preferences of institutional investors, the majority of these studies consider institutional investors as a homogeneous group with similar goals and investment strategies [ 17 ]. There are divergent views on whether institutional investors can effectively stabilize the market, and adequately supervise the controlling shareholders and managers–the absence of consensus possibly stems from the paucity of research that have taken as their focus on the influence of the heterogeneity of institutional investors [ 18 ].…”