Examining the Relationship of Institutional Ownership and Operating Performance: Evidence from Swedish IPOs

Abstract

This study investigates the relationship between institutional ownership and firm operating performance during the three-year period following an IPO in Sweden. It adds to the continuing discussion on whether institutional investors, with their capabilities and incentives to actively monitor, positively impact firm performance. Panel data techniques and fixed effects models are employed to investigate the relationship between institutional ownership and operating performance, while controlling for firm-specific and governance related factors. In contrast to theoretical suggestions and prior empirical findings, we do not find results supporting the notion that institutional ownership positively impacts firm performance following an IPO. Moreover, when separating between pressure-insensitive and pressure-sensitive investors, in line with recent research, no significant impact on firm performance is found. This study brings nuance to previous literature by focusing on Sweden, a country with a long-standing tradition of private blockholder control and highly concentrated ownership, where the ability of institutional investors to exert control is likely more limited.