Patterns of Institutional Investment, Prudence, and the Managerial "Safety-Net" Hypothesis

Institutional Investor Preferences and Price Pressure: The Case of Corporate Spin‐Offs*

“…We classified institutional investors into groups based on investment styles using the factor-analysis and cluster-analysis program described in Bushee (1998). First, we used prior research and guides on institutional ownership to construct 15 variables that have been used to describe the investment preferences of institutional investors (see, e.g., Badrinath, Gay, and Kale 1989;Lev 1991;Carson Group 1995;Del Guercio 1996;Falkenstein 1996). These variables measure the portfolio weighted averages of firm-specific characteristics such as fundamental ratios (E/P, B/P, and dividend yield), risk measures, stock ratings, firm size and maturity proxies, growth measures, and past earnings performance (see table A1 for definitions).…”

“…The final factor (FIDUC) captures portfolio selection based on fiduciary incentives. Institutions with high FIDUC scores prefer firms with high stock ratings, steady earnings growth, lower leverage, and positive earnings, which are characteristics that tend to be preferred by institutions facing strict fiduciary standards (Badrinath et al 1989;Del Guercio 1996).…”

Information Asymmetry, Disclosure and Foreign Institutional Investment: An Empirical Investigation of the Impact of the Sarbanes-Oxley Act

“…vi Prior studies empirically translate these to be large firms, firms with high book-to-market ratios, high liquidity, low leverage and high dividend yields (Badrinath, et al, 1989;Del Guercio, 1996). Indeed, Badrinath, et al (1989) provided supporting evidence on the effect of prudent man rules.…”

“…vi Prior studies empirically translate these to be large firms, firms with high book-to-market ratios, high liquidity, low leverage and high dividend yields (Badrinath, et al, 1989;Del Guercio, 1996). Indeed, Badrinath, et al (1989) provided supporting evidence on the effect of prudent man rules. They showed that the level of institutional shareholdings is positively associated with firm size, past performance, company beta, trading liquidity, and listing history, and negatively associated with stock return volatility.…”

“…The institutional ownership literature mostly finds a positive relationship between firm size and institutional ownership (for example, Badrinath, et al, 1989;Bennett, Sias, & Starks, 2003;Cready, 1994;Dahlquist & Robertsson, 2001;Falkenstein, 1996). Dahlquist and Return on Equity (ROE) is a measure of firm profitability.…”