Financial, Stock Exchange, European listed non-financial companies, Non-bank institutional investors
The presence of non-bank institutional investors in the top 100 European listed non-financial companies in each of the five European countries considered France, Germany, Italy, Spain and the United Kingdom
Summary of the work
The work analyzes the factors that determine the participation of non-bank institutional investors in the top 100 listed companies in each of the five European countries considered (France, Germany, Italy, Spain and the United Kingdom) in the period 2010-2015.
On the basis of the empirical literature, the analysis verifies the impact on the choices of institutional investors of macroeconomic factors, relevant to the characteristics of the reference country, and microeconomics, related to the financial and corporate governance profiles.
With regard to the macroeconomic context, economic growth and country risk were considered (represented through the public debt/GDP ratio and a proxy of the degree of efficiency of the domestic legal system, ie the settlement times of civil cases); as a proxy for the level of financial development, reference was made to the overall market capitalization.
With regard to the characteristics of the companies, the financial variables considered include profitability measures (rate of return on capital, ROE, and growth in turnover) and measures of riskiness (leverage, probability of default).
In addition to these financial statement indicators (typically microstructural), other measures influenced by market fluctuations were considered, such as dividend yield, price-to-book, market capitalization, floating rate (liquidity proxy for shares) and the share held by the main shareholder (which can be understood both as a variable inversely correlated with the liquidity of a security and as a measure of contestability of a company).
The governance variables taken into consideration for each company include, finally, the size of the board of directors, the percentage of independent directors, the presence of the nomination committee and the remuneration committee, the coincidence of the office of CEO and chairman (Ceo duality), as well as a summary indicator of the quality of governance.
The econometric analysis, based on alternative specifications, investigated the determinants of the share of participation of all institutional investors, only mutual funds, sovereign funds and, ultimately, hedge funds, in order to take into differences in the characteristic portfolio approach of the various categories of investors considered.
Moreover, since the relationships between the above variables could be non-linear, the analysis was carried out using both a fixed effect panel data model and a fractional regression model.
The work shows that the presence of institutional investors is correlated both with macroeconomic variables and with the characteristics of individual companies.
However, the results vary depending on the category of institutional investor.
Considering all institutional investors, the analysis highlights the statistically significant impact of: GDP growth (with positive effect) and growth of public debt (negative); inefficiency of the legal system (negative); floating on the market (positive); increase in ROE (positive); leverage (negative); presence of independent directors on the board of directors (positive).
With particular reference to corporate governance, certain specifications also suggest a positive effect related to the presence of independent directors and an inverse relationship with the size of the boards of directors.
The less conclusive results for the categories of sovereign funds and hedge funds must be interpreted in light of their nature as strategic and contrarian/speculative investors.
For example, the presence of sovereign wealth funds and hedge funds in the capital of listed companies, which in some specifications is inversely related to economic growth, would seem to confirm the anecdotal evidence from which such investors would tend to increase their share of participation in phases of recession.
The study contributes to the vast existing literature, bringing updated empirical evidence about the European context and thus providing useful elements for the current policy debate, aimed at reducing the dependence of firms on bank credit and at the basis of the Union of markets project of capital.
January 2018
Francesco Fancello, Nadia Linciano, Lorenzo Gasbarri, Tommaso Giulianelli
Source Consob
