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Mandatory IFRS Adoption and Institutional Investment Decisions
We examine whether the mandatory introduction of International Financial Reporting Standards leads to an increase in institutional investor demand for equities. Using a large ownership database covering all types of institutional investors from around the world, we find that institutional holdings increase for mandatory IFRS adopters. Changes in holdings are concentrated around first-time annual reporting events. Second, we document that the positive IFRS effects on institutional holdings are concentrated among investors whose orientation and styles suggest they are most likely to benefit from higher quality financial statements, including active, value, and growth investors. These results are consistent with holdings changes being associated with the financial reporting regime change. Finally, we show that increased institutional holdings are concentrated in countries in which enforcement and reporting incentives are strongest, and where the differences between local GAAP and IFRS are relatively high. Overall, our study helps shed new light on the channels by which IFRS information becomes impounded in market outcomes.
Journal Article
The Macro Lens: Exploring the Impact of Macroeconomic Variables on India’s Small Cap, Mid Cap, and Large Cap Indices
This study explores the intricate relationship between key macroeconomic variables and India’s equity market segments, specifically the NIFTY Small-cap, Mid-cap, and Large-cap indices. The primary objective is to evaluate how selected macroeconomic factors influence market dynamics and investor sentiment in the Indian context. The research analyses monthly data spanning five years, from January 2019 to January 2024. The macroeconomic indicators considered include Foreign Institutional Investment (FII), Domestic Institutional Investment (DII), Consumer Price Index (CPI), Purchasing Managers’ Index (PMI), Treasury Bill Rate, Gold Price, and Reverse Repo Rate. Statistical techniques such as the Unit Root Test, Ordinary Least Squares (OLS), and Granger Causality Test are employed to assess the short-term and long-term impacts of these variables on market indices. The findings reveal that GDP, CPI, PMI, and Gold Price exhibit no statistically significant influence on the NIFTY Small-cap, Mid-cap, or Large-cap indices, aligning with certain earlier studies. However, variables like FII, DII, Treasury Bill Rate, and Reverse Repo Rate show varying degrees of influence across the indices, highlighting the complex and segmented nature of the Indian equity market. These insights are valuable for investors, policymakers, and financial analysts in refining investment strategies, informing policy frameworks, and enhancing market forecasting models. The study underscores the need for continuous evaluation of macroeconomic influences to better navigate market volatility and investor behaviour.
Journal Article
Impact of COVID-19 and lockdown stringency on foreign institutional investment in India: evidence from wavelet coherence and spectral causality approaches
Foreign institutional investment has played a significant role in India’s recent economic progress. During the 2008 global financial crisis, the influence of foreign institutional investment on India’s economic growth was uneven. With this context in mind, the objective of this study is to analyze the influence of COVID-19, COVID-19 vaccines administered and lockdown stringency on the inflow and outflow of foreign institutional investment in India, using the daily data from January 30, 2020 to January 24, 2022. To achieve the objective of the present study, we have employed the wavelet coherence approach, and Breitung–Candelon spectral granger causality approaches. The outcomes of the wavelet coherence approach show that foreign institutional investment has responded negatively to both the COVID-19 outbreak and the lockdown stringency. Interesting, the response of foreign institutional investment was observed to be hostile towards COVID-19 vaccines; which underscores wait and see strategy of investors during the sample period. The frequency-domain causality approach affirms the lead–lag relationship between COVID-19, COVID-19 vaccines administered, lockdown stringency, and foreign institutional investment. We conclude that COVID-19 and lockdown are predictive factors for future foreign institutional investment at different frequencies. The study is an original work and offers useful policy recommendations.
Journal Article
Institutional investment activities and stock market volatility amid COVID-19 in India
This article examines institutional investors' investment activities and the impact of their trading styles on market volatility amidst COVID-19 in India. Specifically, it seeks to offer a comprehensive analysis of foreign portfolio investors' (FPIs) and domestic mutual fund managers' (MFs) investment on equity and debt securities. It examines whether their trading activities drive market volatility during the pandemic period. Also, it explores the impact of COVID-19 on the Indian equity market. This study finds that the growth of COVID-19 does not significantly affect the stock market volatility during the study period. Precisely, the findings reveal that the FPI's net selling of equity and their overall trading activities in the debt instruments positively impact the market volatility. Findings also show that the FPI's momentum buys and contrarian sales induce market volatility, whereas the MF's trading style does not significantly influence the volatility. The Granger causality tests indicate that the FPI's net sales of equity instruments cause the return volatility and that the market volatility does not drive the equity net sales. Findings also reveal that mutual-fund managers' trading behavior does not Granger cause market volatility; instead, volatility causes MF's net selling of debt instruments.
Journal Article
Board financial expertise and foreign institutional investment: the moderating role of ownership concentration
Purpose The purpose of this paper is to empirically investigate the impact of board financial expertise on the shareholding of foreign institutional investors in an emerging equity market of China and to explore whether ownership concentration moderates the relationship between board financial expertise and foreign institutional investment. Design/methodology/approach To test the hypothesized relationships, this study uses panel data regression models, i.e. static (fixed effect and random effect) and dynamic (two-step generalized methods of moments) models. Further, to control the possible endogeniety issue, this study uses two instrumental variables, namely, board size and industry average financial expertise of board to proxy board financial expertise. This study covers a period from 2006 to 2015 for 169 listed Chinese firms. Findings The results revealed that foreign institutional investors positively perceived board financial expertise and holds more shareholdings with the increasing level of financial experts at boards of directors. Moreover, ownership concentration positively moderated this relationship. It means that in highly concentrated firms, the board financial expertise conveys a stronger signal to foreign institutional investors that firms can manage financial resources rationally by controlling negative effects of ownership concentration. Further, the robustness model also confirmed the relationship between board financial expertise and foreign institutional shareholdings. Originality/value To the best of authors’ knowledge, this is the first study to investigate board-level financial expertise as a determinant of foreign institutional ownership. Further, no previous study has used ownership concentration as a contextual variable on the relationship between board financial expertise and foreign institutional investment.
Journal Article
An Empirical Examination of Institutional Investor Preferences for Corporate Social Performance
This study investigates the pattern of institutional shareholding in the U.K. and its relationship with socially responsible behavior by companies within a sample of over 500 UK companies. We estimate a set of ownership models that distinguish between long- and short-term investors and their largest components and which incorporate both aggregated and disaggregated measures of corporate social performance (CSP). The results suggest that long-term institutional investment is positively related to CSP providing further support for earlier studies by Johnson and Greening (1999, Academy of Management Journal 42, 564-576) and Graves and Waddock (1994, Academy of Management Journal 37, 1034-1046). Disaggregation of CSP into its constituent components suggests that the pattern of institutional investment is also related to the form which CSP takes. Investigation of the impact of investment screens on the selection of stocks suggests that long-term institutional investors select primarily through exclusion, rejecting those firms which have the worst CSP.
Journal Article