Institutional Ownership in Financial Services: Performance and Risk

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 with risk 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 and Fidelity. Moreover, we find a positive and statistically significant relation between performance and the percentage of the industry’s equity owned by the four organizations together. The findings suggest that some 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 Blackrock CEO.