Institutional Investors and firm characteristics: New evidence from India

摘要

PurposeThis paper examines dynamic preferences towards firm characteristics by domestic institutional investors (DIIs) and foreign institutional investors(FIIs) in Indian context and study temporal variation of the same across varying market swings.Design/Methodology/ApproachWe use quarterly institutional holding data of 1591 Indian firms between 2001 and 2015 (amounting to a total of 95460 firm-quarters) and apply a series of univariate and multivariate approaches to explore the issues mentioned above. Most related previous studies consider just one class of institutional investors like FIIs or DIIs. We augment that trend by including both DIIs and FIIs to accommodate the starkly varying nature of constraints and regulations within which FIIs and DIIs work in India. We substantiate our results from the main analysis through a series of robustness tests.FindingsOur principal findings show evidence of some common institutional preferences and dislikes as well as some noticeable differences. Common preferences are manifested towards firms with existing institutional investment, higher dividend-yield, more liquidity, higher earnings-margins, existing international exposure and longer survival history in industry. Common strong dislike is visible for high leverage and high price-book stocks and for stocks with high variability in earnings. Preferences seem to be varying across different classes of institutions w.r.t some firm attributes. FIIs exhibit preferences towards ‘index-stocks’ and large stocks while both these traits are not preferred by MFs and DIIs. There is also evidence of temporal variation of these patterns across bull and bear cycles.Originality/valueOverall, our results highlight both similarities and differences in institutional preferences for firm attributes in India. The findings of this study can be useful in identifying the key drivers of institutional investments and can help policy makers in emerging markets, and India in particular, in understanding, monitoring, directing and regulating institutional inflows.