Institutional ownership as a driver of valuation - A study of how stocks are affected by institutional ownership changes between 2018-2024

Abstract

This study investigates the effect of changes in institutional ownership on Swedish publicly listed companies during the period 2018 to 2024. We analyze whether the changes in the proportion of institutional ownership are associated with changes in the valuation multiples P/E and EV/EBITDA. Additional focus lies on investigating if the effect varies depending on the size of the company and the initial level of institutional ownership. The data material consists of 71 Swedish publicly traded companies, with quarterly data spanning seven years, which gives a total of 1988 observations. The relationship between institutional ownership and company valuation is analyzed over time using panel data. The results show that there is a positive and statistically significant relationship between increased institutional ownership and increased valuation multiples. The institutional ownership variables show clear relationships in the models for both EV/EBITDA and P/E. The pattern is strongest for EV/EBITDA, but P/E also shows statistical significance in two of three models, suggesting that this measure is also relevant despite higher volatility. The effect is the most pronounced in companies that had a low proportion of institutional ownership at the start of the period, which would indicate that the marginal effect of increased institutional interest is the strongest for these groups. The study indicates that stock valuation is largely influenced by how the market interprets ownership changes, especially in contexts where institutional entry is likely perceived as validation.