The impact of institutional investors’ ownership on firm’s value and performance

Abstract: Institutional investors and large investors play a crucial role as a governance mechanism to protect outsiders from excessive rent extraction by insiders. Where institutional investors can serve as a governance mechanism to intervene and discipline management, it also has several drawbacks and imperfections. This thesis investigates the principal-agent problem and empirically investigates how institutional investors impact shareholder value and firm operating performance on the Swedish market for large- and small-cap firms listed on the Stockholm Stock Exchange. The sample consists of 102 large-cap and 78 small-cap firms, including financial and non-financial except investment companies, which are observed quarterly from 2014 to 2021. The instrumental variable approach results in a negative impact from institutional investors on large-cap firm operating performance. Additionally, institutional investors have a negative impact on firm operating performance for small-cap firms. Consequently, total institutional investors impact shareholder value negatively. Furthermore, the thesis finds that several categories of institutional investors contribute to shareholder value and firm performance differently.