How do foreign and domestic institutional investors drive the market value? The influence of family ownership

Abstract

Purpose: this paper investigates and compares the value impacts of foreign and domestic institutional investors on the market value of family and non-family companies. Subsequently, examines how foreign and domestic institutional investors and their value impacts get influenced by different degrees of family ownership.

Design/methodology/approach: the sample of this study includes 339 non-financial firms from NIFTY-500 for 11 years from 2011 to 2020, which contains 128 family and 211 non-family companies. Both static (Fixed-effect model) and dynamic (two-step system GMM) models are employed to test the hypotheses.
Findings: Findings suggest that foreign institutional investors outshine domestic institutions in terms of value creation. Meanwhile, higher (>50%) family holdings are detrimental to the foreign institutional investors, while moderate holdings (26%-49%) improve domestic institutional investments. The favorable effect of foreign players gets diluted with the higher (>50%) family holdings, while the adverse effect of domestic players improves with the moderate (26%-49%) family holdings. Overall, partial family control is beneficial, while low and absolute family control is detrimental to market value. These findings clearly indicate that institutional investors are family control-dependent, where family control effect is not static.

Originality/value: this paper offers a novel perspective by addressing the effect of costs and benefits realized at three distinctive level of family holdings on foreign and domestic institutional investors, and their value impacts to witness differences caused by varying family control, which is not done earlier as per the best of our knowledge.

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Identifiers

ORCID for Larisa Yarovaya: orcid.org/0000-0002-9638-2917

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