PERFORMANCE IN FINANCIAL SERVICES: DOES INSTITUTIONAL OWNERSHIP MATTER?

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Ping Wang, James Barrese, David Pooser

DOI:10.22495/cocv16i2art11

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Abstract

Institutional investor ownership has often been considered a corporate governance variable, typically used to proxy those investors’ ability to influence managers and to expropriate wealth from smaller shareholders. Large institutional investors have developed common holdings across numerous firms within industries. We consider the effects of institutional investor ownership on the performance of banks and insurance companies. Using a generalized autoregressive conditional heteroscedasticity model with firm- and year-fixed effects, we find strong statistical relation between performance and individual firm’s ownership stakes by Blackrock, Inc. and Fidelity Investments. Moreover, we find a positive and statistically significant relation between performance and the percentage of the industry’s equity owned by the Blackrock, Fidelity, State Street and Vanguard. The findings suggest that organizations like Blackrock are successful in obtaining long-term returns by exerting influence over the management of their invested firms, which is consistent with recent statements by the CEO of Blackrock but is also consistent with a “bet on the winners” strategy.

Keywords: Institutional Ownership, Performance, Risk, Insurance, Banking

JEL Classification: G23, G32, L25

Received: 11.01.2019

Accepted: 05.03.2019

Published online: 07.03.2019

How to cite this paper: Wang, P., Barrese, J., & Pooser, D. (2019). Performance in financial services: Does institutional ownership matter? Corporate Ownership & Control, 16(2), 108-120. http://doi.org/10.22495/cocv16i2art11