The colors of investors money：The role of institutional investors around the world.pdf

ARTICLE IN PRESS Journal of Financial Economics 88 (2008) 499–533 /locate/jfec The colors of investors’ money: The role of institutional investors around the world $ a b, Miguel A. Ferreira , Pedro Matos aISCTE Business School, Av. Forc- as Armadas, 1600-189 Lisbon, Portugal bMarshall School of Business, University of Southern California, 3670 Trousdale Pkwy BRI308, Los Angeles, CA 90089, USA Received 12 April 2006; received in revised form 13 June 2007; accepted 17 July 2007 Available online 6 March 2008 Abstract We study the role of institutional investors around the world using a comprehensive data set of equity holdings from 27 countries. We find that all institutional investors have a strong preference for the stock of large firms and firms with good governance, while foreign institutions tend to overweight firms that are cross-listed in the U.S. and members of the Morgan Stanley Capital International World Index. Firms with higher ownership by foreign and independent institutions have higher firm valuations, better operating performance, and lower capital expenditures. Our results indicate that foreign and independent institutions, with potentially fewer business ties to firms, are involved in monitoring corporations worldwide. r 2008 Elsevier B.V. All rights reserved. JEL classification: G15; G24; G32; G34 Keywords: Institutional investors; Firm value; International capital markets; Monitoring 1. Introduction A key factor in global capit