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AB STR AC T
Keywords:
The aim of this study is to investigate the relationship between institutional ownership and
investment strategies in firms listed in Tehran Stock Exchange (TSE). Institutional ownership is
considered as independent variable and investment strategies as dependent variable. Investment
strategies are proxies for investment instruments namely cost of capital, liquidity, firms size,
investment in capital assets and financial leverage. Using financial statements of firms listed in
TSE to draw required data for the period between 2000 and 2011, the hypotheses are tested
utilizing multivariable regression model. The results indicate that only firms size as investment
strategy proxy matters in institutional ownership and other investment strategies including cost of
capital, liquidity, investment in capital assets and financial leverage do not matters.
institutional ownership,
investment strategies
Tehran Stock Exchange
2013 Int. j. econ. manag. soc. sci. All rights reserved for TI Journals.
1.
Introduction
The shareholders have certain rights as the owners of the firm including the appointment of the Board of Directors. The Board, as the agent
of the shareholders, has the direct responsibility to monitor the managers and their performance. The separation of ownership and control
sets the basis for conflict, or agency problems, between shareholders, the board, and corporate management [6]. This has led to many
debates on corporate governance attributes as a system to reduce the conflict. Research [6] defines corporate governance as the system of
laws, rules, and factors that control operations at a company. Institution ownership is one of corporate governance mechanisms which grow
approximately one-quarter of U.S. equity markets in 1980, to over a half in 1994 [9]. The researches have been conducted in Iran also
confirms that the amount institutional investors have increased in TSE firms over the time [7].
On the other hand, cost of capital is affected by financial constraint and investment tools. Investors rely on firms management in choosing
investment projects to increase firms value. In spite of the fact that investment opportunities should be considered in investment decisions,
however, empirical researches show that in firms with information asymmetry and agency conflicts, optimal level of investment is deviated
and results in over or under-investment. Over-investment can be accorded when management uses opportunistic approaches. In this
situation, small investors have very low incentives to monitor management behavior; however, institutional ownership has a monitoring role
in firms because this sort of ownership has long term investment and motivation to do so. However, it is expected that institutional
ownership affect firms investment strategies. For example, [4] argues that institutional investors attend to liquidity to be controlled for
monitoring management activity.
Taking the above arguments into consideration, the aim of this study is to investigate the relationship between institutional ownership and
investment strategies in firms listed in TSE.
2.
Literature review
Research [10] studied the effect of institutional ownership on the cost of bank borrowing and find that institutional ownership is negatively
related to the cost of loans. They show that this relationship is stronger for firms with higher degrees of information asymmetry and
institutional investors play an active role in corporate governance by reducing the risk levels of their portfolio companies through
effectively monitoring management. Institutional ownership has the tendency to increase the cost of loans due to the agency cost of debt.
Overall, they find a significant and robust U-shaped relationship between institutional ownership and the cost of loans. Nevertheless,
companies with institutional investors still pay significantly lower borrowing costs than companies without institutional shareholders.
* Corresponding author.
Email address: Jabbarzadeh.s@gmail.com
The Investigation of the Relationship between Institutional Ownership and Investment Strategies in Firms Listed in Tehran Stock 397
Internat ional Jour nal of Economy, Mana ge ment and Social Sciences , 2(6) June 2013
Research [3] investigated the relationship between institutional ownership and accounting transparency. Their results indicate that firms
with higher level of institutional ownership exhibit higher accounting transparencies, larger idiosyncratic risks, and larger earnings response
coefficients.
Research [8] investigated the effect of ownership structure on stock liquidity and stock transaction volume in TSE. They did not find
evidence to support such effect.
Research [1] investigated the impact of institutional ownership and dividend policy on stock returns and volatility results and show that
private institutional ownership has significant and positive effect on stock volatility while it has no effect on returns. He also finds that
private institutional ownership has negative effect on dividend payout ratio. Finally, he shows that private institutional ownership
significantly increases volatility for non-dividend paying stocks only because these stocks are more subject to institutional herding than
dividend paying stocks.
Research [5] investigated the relationship among institutional ownership, capital structure, and R&D investment for 336 listed IT firms
from 2006 to 2009 by using OLS regression model. His empirical evidence shows that there is no significant relationship between
institutional ownership and R&D investment. His finding suggests that institutional investors may not influence management decision
making on R&D investment. He finds that capital structure has a negative relationship with R&D investments. He also indicates that the
result indicates that IT firms may use less debt when investment outcome is uncertain.
Research [2] studied as to the relationship between institutional ownership and cash holdings and find that firms with greater institutional
ownership have more cash holdings. Their further tests show that the effect of both types of institutional ownership on firm cash holdings is
more significant for growth firms that rely more on external financing and suffer more from cash shortages.
3.
Hypotheses development
The main hypothesis: there is a significant relationship between institutional ownership and investment strategies in TSE listed firms.
To test the main hypothesis, this hypothesis is captured by fife sub-hypotheses as followings:
Sub-hypothesis 1: there is a significant relationship between institutional ownership and cost of capital in TSE listed firms.
Sub-hypothesis 2: there is a significant relationship between institutional ownership and investment in capital assets in TSE listed firms.
Sub-hypothesis 3: there is a significant relationship between institutional ownership and leverage in TSE listed firms.
Sub-hypothesis 4: there is a significant relationship between institutional ownership and liquidity in TSE listed firms.
Sub-hypothesis 5: there is a significant relationship between institutional ownership and firms size in TSE listed firms.
4.
5.
Empirical results
398
Int ernational Journal of Ec onomy, Mana ge me nt and Soci al Sc iences, 2(6) June 2013
CACOST
CAPASS
LEV
LIQUID
SIZE
MB
OPCASH
AGE
RETURN
Mean
0.535382
0.093120
1101.910
0.774493
76235.18
5.593619
4.292933
266845.7
14.55226
69.81959
Median
0.520000
0.090000
300.0000
0.690000
11401.00
5.510000
2.290000
39221.00
12.00000
8.930000
Maximum
1.000000
2.640000
24366.00
13.65000
3032832.
7.920000
64.90000
10513630
42.00000
4484.490
Minimum
0.080000
-4.010000
1.000000
0.150000
136.0000
4.090000
-10.29000
-2413332.
0.000000
-642.9300
Std. Dev.
0.192163
0.276845
2351.450
0.689549
274074.8
0.623873
6.971689
1048073.
9.020506
349.9130
Skewness
0.293790
-7.997654
4.732468
11.61331
7.213185
0.750841
4.797948
6.268902
1.028549
9.066987
Kurtosis
2.715771
135.4693
32.75244
196.8975
61.97348
3.981278
31.50812
48.54602
3.171236
97.61758
Observations
641
641
641
641
641
641
641
641
641
641
Notes: IN is institutional ownership, CACOST is cost of capital, CAPASS is investment in capital assets, LEV is leverage, LIQUID is liquidity, SIZE is firms size, MB is equity
market to book value, OPCASH is operating cash flow, AGE is firms age and RETURN is stock return.
According to Table 1, 0.53 of sample firms (641 observations) ownership includes institutional ownership which is more than half.
Standard deviation, kurtosis and skewness as dispersion parameters indicate that most of variables other than institutional ownership which
has 0.19 standard deviation have high dispersion in its distribution.
5.2. Correlation matrix
Correlation matrix of research variables is shown in Table 2.
Table 2. Correlation matrix
AGE
CACOST
CAASS
IN
LEV
LIQUID
MB
OPCASH
RETURN
AGE
1.000000
CACOST
-0.042580
1.000000
CAASS
0.008918
0.042649
1.000000
IN
-0.185244
-0.003095
-0.004251
1.000000
LEV
0.041813
-0.015443
-0.038279
0.020385
1.000000
LIQUID
-0.041035
0.066644
0.430778
-0.095061
-0.047846
1.000000
MB
-0.089182
0.018372
-0.074376
-0.059099
-0.025232
-0.048420
1.000000
OPCASH
-0.049960
0.065870
0.329689
-0.133821
-0.060176
0.900812
-0.011071
1.000000
RETURN
-0.040245
0.069496
0.404434
-0.089698
-0.052547
0.862417
-0.061495
0.807400
1.000000
SIZE
0.010550
0.061394
0.423114
0.071227
-0.105787
0.572155
-0.022458
0.515187
0.470425
SIZE
1.000000
Table 2 demonstrates that the most correlation is between liquidity and operating cash flows which is according to expectations while both
measures use the rather the same data. In addition, the least correlation is between cost of capital and institutional ownership which is not
promising to accept the hypothesis as to the relationship between cost of capital and institutional ownership
5.3. Hypotheses test
Sub-hypothesis 1: there is a significant relationship between institutional ownership and cost of capital in TSE listed firms.
The results of this hypothesis conducting multivariate regression model is shown in Table 3.
Table 3. The results of regression on relationship between institutional ownership and cost of capital
Variable
Coefficient
Std. Error
t-Statistic
Prob.
0.103659
0.042628
2.431704
0.0153
IN
-0.002033
0.058810
-0.034576
0.9724
AGE
-0.001167
0.001245
-0.937038
0.3491
MB
0.000723
0.001588
0.455566
0.6489
OPCASH
6.30E-09
1.79E-08
0.353066
0.7242
RETURN
3.93E-05
5.33E-05
0.738230
0.4606
R-squared
0.006983
Adjusted R-squared
-0.000836
F-statistic
Prob(F-statistic)
0.893129
0.485184
Durbin-Watson stat
1.983203
The results of Table 3 indicate that there is not a significant relationship between institutional ownership and cost of capital in TSE listed
firms so this hypothesis is rejected. Also results of control variables show that there is not a significant relationship between firms age,
market to book value, operating cash flows and stock return with cost of capital. F-statistic indicates that whole model is not significant and
Durbin-Watson stat indicates that there is no autocorrelation problem among models residual considering that its value is between 1.5 and
2.5. Adjusted R-squared manifests that 0.006 of independent variable is explained by dependent and control variables.
The Investigation of the Relationship between Institutional Ownership and Investment Strategies in Firms Listed in Tehran Stock 399
Internat ional Jour nal of Economy, Mana ge ment and Social Sciences , 2(6) June 2013
Sub-hypothesis 2: there is a significant relationship between institutional ownership and investment in capital assets in TSE listed firms.
The results of this hypothesis conducting multivariate regression model is shown in Table 4.
Table 4. The results of regression on relationship between institutional ownership and investment in capital assets
Variable
Coefficient
Std. Error
t-Statistic
Prob.
C
IN
AGE
622.1726
581.6323
8.461063
419.1969
463.4129
11.55423
1.484201
1.255106
0.732291
0.1383
0.2099
0.4643
MB
-3.874231
9.310362
-0.416120
0.6775
OPCASH
0.000108
8.77E-05
1.233016
0.2180
RETURN
0.577826
0.270426
2.136727
0.0330
R-squared
0.664631
Adjusted R-squared
0.661437
F-statistic
208.0879
Durbin-Watson stat
2.157524
Prob(F-statistic)
0.000000
The results of Table 4 indicate that there is not a significant relationship between institutional ownership and investment in capital assets in
TSE listed firms so this hypothesis is rejected. Also results of control variables show that there is not a significant relationship between
firms age, market to book value, operating cash flows with investment in investment in capital assets. However, there is a positive
significant relationship between stock return and investment in investment in capital assets. F-statistic indicates that whole model is
significant and Durbin-Watson stat indicates that there is no autocorrelation problem among models residual considering that its value is
between 1.5 and 2.5. Adjusted R-squared manifests that 0.66 of independent variable is explained by dependent and control variables.
Sub-hypothesis 3: there is a significant relationship between institutional ownership and leverage in TSE listed firms.
The results of this hypothesis conducting multivariate regression model is shown in Table 5.
Table 5. The results of regression on relationship between institutional ownership and leverage
Variable
Coefficient
Std. Error
t-Statistic
Prob.
0.710905
0.106225
6.692474
0.0000
IN
0.069791
0.146548
0.476233
0.6341
AGE
0.003109
0.003103
1.001923
0.3168
MB
-0.002166
0.003957
-0.547356
0.5843
OPCASH
-2.84E-08
4.45E-08
-0.637333
0.5241
RETURN
-3.10E-05
0.000133
-0.233430
0.8155
R-squared
0.006069
Adjusted R-squared
-0.001757
F-statistic
0.775456
Durbin-Watson stat
1.481352
Prob(F-statistic)
0.567607
The results of Table 5 indicate that there is not a significant relationship between institutional ownership and leverage in TSE listed firms
so this hypothesis is rejected. Also results of control variables show that there is not a significant relationship between firms age, market to
book value, operating cash flows and stock return with leverage. F-statistic indicates that whole model is not significant and DurbinWatson stat indicates that there is no autocorrelation problem among models residual considering that its value is between 1.5 and 2.5.
Adjusted R-squared manifests that 0.006 of independent variable is explained by dependent and control variables.
Sub-hypothesis 4: there is a significant relationship between institutional ownership and liquidity in TSE listed firms.
The results of this hypothesis conducting multivariate regression model is shown in Table 6.
Table 6. The results of regression on relationship between institutional ownership and liquidity
Variable
Coefficient
Std. Error
t-Statistic
Prob.
-539.7592
15585.26
-0.034633
0.9724
IN
27010.07
21501.46
1.256197
0.2095
AGE
185.3345
455.3418
0.407023
0.6841
MB
-650.2908
580.5770
-1.120077
0.2631
OPCASH
0.155055
0.006526
23.75779
0.0000
RETURN
301.2508
19.47197
15.47100
0.0000
R-squared
0.864566
Adjusted R-squared
F-statistic
810.7272
Durbin-Watson stat
Prob(F-statistic)
0.000000
0.863500
1.673200
400
Int ernational Journal of Ec onomy, Mana ge me nt and Soci al Sc iences, 2(6) June 2013
The results of Table 6 indicate that there is not a significant relationship between institutional ownership and liquidity in TSE listed firms
so this hypothesis is rejected. Also results of control variables show that there is not a significant relationship between firms age, market to
book value with leverage. However, there is a positive significant relationship between stock return and operating cash flows with liquidity.
F-statistic indicates that whole model is significant and Durbin-Watson stat indicates that there is no autocorrelation problem among
models residual considering that its value is between 1.5 and 2.5. Adjusted R-squared manifests that 0.86 of independent variable is
explained by dependent and control variables.
Sub-hypothesis 5: there is a significant relationship between institutional ownership and firms size in TSE listed firms.
The results of this hypothesis conducting multivariate regression model is shown in Table 7.
Table 7. The results of regression on relationship between institutional ownership and firms size
Variable
Coefficient
Std. Error
t-Statistic
Prob.
5.135196
0.102215
50.23937
0.0000
IN
0.489859
0.106492
4.599940
0.0000
AGE
0.010538
0.002673
3.942729
0.0001
MB
0.001361
0.002127
0.639907
0.5225
OPCASH
6.19E-08
2.01E-08
3.076734
0.0022
RETURN
0.000405
6.20E-05
6.535083
0.0000
R-squared
0.746713
Adjusted R-squared
0.744301
F-statistic
309.5497
Durbin-Watson stat
2.034240
Prob(F-statistic)
0.000000
The results of Table 7 indicate that there is a positive significant relationship between institutional ownership and firms size in TSE listed
firms so this hypothesis is accepted. Also results of control variables show that there is not a significant relationship between market to
book value and firms size. However, there is a positive significant relationship between stock return, operating cash flows and firms age
with firms size. F-statistic indicates that whole model is significant and Durbin-Watson stat indicates that there is no autocorrelation
problem among models residual considering that its value is between 1.5 and 2.5. Adjusted R-squared manifests that 0.74 of independent
variable is explained by dependent and control variables.
6.
The aim of this study is to investigate the relationship between institutional ownership and investment strategies in firms listed in Tehran
Stock Exchange (TSE). Institutional ownership is considered as independent variable and investment strategies as dependent variable.
Investment strategies is proxied by investment instruments namely cost of capital, liquidity, firms size and financial leverage. Using
financial statements of firms listed in TSE to draw required data for the period between 2000 and 2011, the hypotheses are tested utilizing
multivariable regression model. Fife hypotheses are developed to test the relationship between institutional ownership and investment
strategies. In the first hypothesis it is posited that institutional ownership affects cost of capital. However, this hypothesis is not accepted
showing that in TSE firms, institutional ownership does not reduce cost of capital which is not promising. In the second hypothesis, it is
expected that institutional ownership has an impact on investment in capital assets which also rejected. Institutional ownership has a great
monitoring role in firms and should review management investment tasks. Third hypothesis considers the relationship between institutional
ownership and leverage. It is expected that institutional ownership considering its influences and voting right has also great impact in debt
contracts but it is not the case for TSE firms. Fourth hypothesis discusses as to the effect of institutional ownership on firms liquidity.
Firms liquidity is the most critical resources of the firms and the most vulnerable one which should be highly controlled. Taking the fact
that institutional ownership has control tools in the firms, it stipulated that it affects firms liquidity which does not in TSE. The last
hypothesis is about the relationship between institutional ownership and firms size which is accepted showing that bigger firms has more
institutional ownerships than the small ones considering the positive significant relationship between them. These results suggest that while
0.53 of sample firms (641 observations) ownership includes institutional ownership, they could not affect management investment
strategies.
The Investigation of the Relationship between Institutional Ownership and Investment Strategies in Firms Listed in Tehran Stock 401
Internat ional Jour nal of Economy, Mana ge ment and Social Sciences , 2(6) June 2013
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