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Article
Publication date: 27 June 2023

V. Veeravel, Pradiptarathi Panda and A. Balakrishnan

The present study aims to verify whether there is a positive (negative) role being played by the institutional investors on the loss-making companies' performance.

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Abstract

Purpose

The present study aims to verify whether there is a positive (negative) role being played by the institutional investors on the loss-making companies' performance.

Design/methodology/approach

The authors employ panel data regression and two-step system generalised method of moments (SYS-GMM) to test the above objective.

Findings

The empirical results clearly show that no positive relation is found between institutional investors and loss-making companies' performance.

Research limitations/implications

The findings of the study might have significant implications for firms to improve the firms' operational performance [return on assets (ROA)]. Also, the firm's financial performance [return on equity (ROE)] could be improved by increasing profitability which will reflect in the share prices of the firms whereby the performance can build the investors' confidence over the firm. Market performance (Tobin's Q) could be increased by providing more attractive offers and discounts to customers to capture the business opportunities available in the market.

Practical implications

The overall findings might have for reaching implications in the manufacturing sector with regard to allowing (disallowing) institutional investors.

Social implications

The results of the study may help both companies and institutional investors.

Originality/value

This is the maiden attempt to study whether loss-making companies could be positively (negatively) impacted by the arrival of sophisticated institutional investors [foreign institutional investors (FIIs) and domestic institutional investors (DIIs)]. Further, this study is largely different from previous studies in terms of using new variables which are related to firm characteristics and valuation multiples. Further, seeing if the institutional investors tend to enhance the firm performance is curious.

Details

Managerial Finance, vol. 49 no. 12
Type: Research Article
ISSN: 0307-4358

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