Institutional ownership, firm performance and ESG scores.

Abstract

This paper seeks to identify the effect of institutional ownership on firm performance. Building on existing literature, this paper studies if similar results can be seen in the context of seventeen European Nations and specifically, firms in the STOXX Europe 600 for the last ten years. This paper further attempts to fill a gap in the literature by also studying the effect of Institutional ownership on firm ESG ratings. Two major test variables are studied: ‘Number of institutional investors’ and ‘Proportion of institutional ownership’. Several control variables are also included in the analysis to ensure overall robustness of the model. A panel data approach is utilized for firms that have been present over the entire sample period and positive significant results are found for ‘number of institutional investors’ with respect to firm performance and ‘proportion of institutional investors’ with respect to firm ESG scores. Any further understanding of the effect of institutional ownership is relevant to stakeholders in financial markets and also has implications on corporate governance.