Institutional investors’ investment preference and monitoring: evidence from Malaysia

Institutional investors’ investment preference and monitoring: evidence from Malaysia PurposeThe purpose of this paper is to examine the investment preference of various types of institutional investors in Malaysia, and its influence on firm valuation, operating performance and capital expenditure.Design/methodology/approachThis study employs ordinary least squares model to examine: investment preference according to different types of institutional investors; the association between various types of institutional investors and firm valuation; the association between various types of institutional investors and firm performance; and the association between various types of institutional investors and capital expenditure.FindingsThe result shows that different types of institutional investors exhibit different investment preference. From the domiciles perspective, local institutional investors (LII) are found to be associated with higher Tobin’s Q, ROA and net profit margin. When viewed from business relationship perspective, “pressure-resistant” institutional investors (PRII) are positively associated with Tobin’s Q, ROA and net profit margin. Both LII and PRII are also associated with higher capital expenditure.Originality/valueThis study reveals the investment preferences of various types of institutional investors in an emerging market economy. The results show that institutional monitoring is associated with higher firm valuation, higher firm performance and higher capital expenditure. However, the effect is largely driven by local and PRII, particularly government-controlled institutional funds. These evidence suggest that different firm outcomes between emerging and advanced economy can be explained by variation in institutional setting. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Finance Emerald Publishing

Institutional investors’ investment preference and monitoring: evidence from Malaysia

Managerial Finance, Volume 45 (9): 20 – Sep 9, 2019

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0307-4358
D.O.I.
10.1108/MF-07-2018-0314
Publisher site
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Abstract

PurposeThe purpose of this paper is to examine the investment preference of various types of institutional investors in Malaysia, and its influence on firm valuation, operating performance and capital expenditure.Design/methodology/approachThis study employs ordinary least squares model to examine: investment preference according to different types of institutional investors; the association between various types of institutional investors and firm valuation; the association between various types of institutional investors and firm performance; and the association between various types of institutional investors and capital expenditure.FindingsThe result shows that different types of institutional investors exhibit different investment preference. From the domiciles perspective, local institutional investors (LII) are found to be associated with higher Tobin’s Q, ROA and net profit margin. When viewed from business relationship perspective, “pressure-resistant” institutional investors (PRII) are positively associated with Tobin’s Q, ROA and net profit margin. Both LII and PRII are also associated with higher capital expenditure.Originality/valueThis study reveals the investment preferences of various types of institutional investors in an emerging market economy. The results show that institutional monitoring is associated with higher firm valuation, higher firm performance and higher capital expenditure. However, the effect is largely driven by local and PRII, particularly government-controlled institutional funds. These evidence suggest that different firm outcomes between emerging and advanced economy can be explained by variation in institutional setting.

Journal

Managerial FinanceEmerald Publishing

Published: Sep 9, 2019

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