Institutional ownership and investment by private companies

Abstract

We examine the impact of institutional shareholders on the investment activity and external financing of established private companies. Our sample includes both VC and non-VC institutions, and both controlling and minority ownership stakes. Institutions give rise to higher levels of investment in intangible assets—but not in tangible assets—and higher funding via external equity. These results apply even if the institution has a small non-controlling stake, suggesting that institutions promote investment by alleviating funding constraints. Over 40% of our sample firms display ownership by non-VC institutions only, acting independently of VC funds.