Institutional Investments in India: A Review of the Literature
Article Details
Pub. Date
:
Apr,
2014
Product Name
:
The IUP Journal of Corporate Governance
Product Type
:
Article
Product Code
:
IJCG31404
Author Name
:
Amiya K Sahu, L K Vaswani and Amrita Chakraborty
Availability
:
YES
Subject/Domain
:
Management
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:
PDF Format
No.
of Pages
:
18
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Abstract
This paper reviews the relevant literature on institutional investment and firm performance in India. It discusses the development of institutional investments in general under different segments like ownership and firm performance, role of large shareholders, and institutions as large shareholders in influencing corporate governance, reducing agency costs and affecting firm performance. It then discusses the monitoring role of institutional investors and the cost and benefits of monitoring. It also describes institutional investment in India and segments it into different groups of institutions and summarizes the extant studies in each category, i.e., mutual funds, banks and financial institutions, and foreign financial institutions. The paper shows that studies have reported divergent results in the context of developed economies. Although the history of institutional investment in India is short and the number of research in the Indian context is limited, they report evidence of monitoring. While the influence of mutual funds and banks is not clear, recent studies have argued that foreign institutional investors’ shareholding has a positive influence on firm performance.
Description
Researchers have recorded that large shareholders have an advantage or incentive to influence firm’s managers and their decisions. Large shareholders can be broadly classified as insiders and outsiders. As outsiders, when financial institutions control larger shareholding, they tend to monitor corporate management’s policies and actions, thereby addressing the agency problems. This enhances corporate governance and influences firm performance.
Institutional monitoring activities affect different aspects of a firm such as the size of a corporate board, executive compensation, accounting policies and disclosures and investment decisions. Research studies, also, have discussed the impact of different categories of institutional investors. As there is resource heterogeneity among these institutions, their effects on firm’s performance are divergent (Douma et al., 2006). Similarly their capacity to address agency problem and influence governance are also diverse.
Keywords
Corporate Governance Journal, Institutional Investments, Foreign Institutional Investors (FIIs), Firm Performance, Large Shareholders, Large Shareholders, Decision Influencers, Institutional Investors, Costs and Benefits, Literature.