Interplay among the large investor groups and the ownership-performance relationship

Abstract

This paper applies several methodologies to examine the interplay among large shareholders. We find that firm performance is positively associated with insider and institutional ownership, but negatively associated with blockholder ownership. More importantly, we find that insider and institutional ownership are negatively related to each other, functioning as substitutes. However, they are both positively related to blockholder ownership, indicating that the endogenous optimal ownership requires higher insider and/or institutional ownership when there is high blockholder ownership. Methodologically, we find that using residual ownership reduces or eliminates spurious variations in the non-linear relationship between firm performance and insider ownership, and industry adjustment generates more reliable estimates. This paper sheds light on the complex interplay among these various types of large investors.