Giants at Play: A study on the impact of institutional ownership on firm performance

Abstract: This study examines whether changes in the level of institutional ownership impact the market value and operating performance of firms. This is done by testing three different hypotheses based on different institutional ownership characteristics on a sample of 197 Swedish large- and mid-cap listed companies between the years 2016-2021. Our results show no relationship between total and domestic institutional ownership and firm performance, a positive relationship between foreign and non-blockholding institutional ownership and firm performance, and a negative relationship between blockholding institutional ownership and market value. We first conclude that foreign and non-blockholding institutional ownership, in line with the active monitoring view and the findings on informational availability combined with the agency theory, are effective monitors of their investee firms. We also conclude that blockholding institutional owners, in line with the private benefits view, are ineffective monitors who decrease shareholder value. Our results bring nuance to previous literature and theory, suggesting that the research space would benefit from further research.