INSTITUTIONAL OWNERSHIP AND SIMULTANEITY OF STRATEGIC FINANCIAL DECISIONS: AN EMPIRICAL ANALYSIS IN THE CASE OF PAKISTAN STOCK EXCHANGE
The traditional interpretation of corporate finance is characterized by ownership. Although, their rights are widely distributed among individual stockholders, but can be managed by few managers. Hence, conflict
of interest is arisen among managers and shareholders and this results in an agency problem (Fama, 1980; Fama & Jensen, 1983). A number of empirical studies also confirmed the ownership concentration of firms, especially those dominated by few large owners or block-holders (La Porta et al., 1999). The concentrated structure of ownership also contributes towards agency conflict between block-holders and minority shareholders. From another perspective, the block-holders can benefit minority shareholders by their role in monitoring managers and also can be hazardous if they strive to achieve their own private goals (Shleifer & Vishny, 1997).
Jméno a příjmení autora:
Rabeea Sadaf, Judit Oláh, József Popp, Domicián Máté
Strategic decisions, endogeneity, institutional ownership, 3SLS
DOI (& full text):
The traditional interpretation of corporate finance is characterized by ownership rights are widely distributed among individual stockholders, but can be managed by few managers and resulted in an…více
The traditional interpretation of corporate finance is characterized by ownership rights are widely distributed among individual stockholders, but can be managed by few managers and resulted in an agency problem. The primary objective of this research study is to investigate the relationship between institutional ownership and firms’ strategic decisions. These strategic decisions include i.e. leverage, dividend and investment decisions. The examined data is used from 170 non-financial Pakistani listed firms, characterized by a large percentage of institutional investors, with a multiple equity stake in different firms across a wide field of industries. This study is also able to show two important novelties. Firstly, the fact that previous researchers have already concentrated on the impact of institutional ownership on individual strategic decisions, as dividend or leverage policies and several unanswered questions remain. Consequently, the impact of institutional ownership has explored collectively on various strategic decisions. Secondly, this study also recognizes the determination of strategic decisions by considering the endogeneity problem with a Three-Stage Least Square (3SLS) method. Essentially, the effects of institutional ownership on firms’ leverage becomes more pronounced after including industry specific and time dummies in regression models. Based on the results, the case of increased institutional ownership of firms has a significant negative effect on leverage, and a positive effect on dividend decisions. Hence, institutional investors are seemed to prefer low leveraged and high dividend-paying firms. Moreover, this study has not able to find significant two-way relations between institutional ownership and investment decisions, so institutional investors rather focus on corporate governance and internal control of firms. Indeed, institutional investors should develop the efficiency of firms’ management to support more adequate corporate governance policies, and not only for emerging markets.