Institutional Investment of Emerging Markets

Being able to understand what the investment criteria of the institutional investors on the emerging markets is increasingly important for the firms’ managers, financial authorities and the bankers. Our paper investigates thoroughly the possible factors affecting the level of institutional ownership in the firm and the magnitude of said investment, including financial markers, quality of corporate governance, being partially government – owned, predictability of profits, quality of asset management. The data we use is gathered from the WIND terminal and covers the companies from the SSE Composite Index trading on the Shanghai Stock Exchange for the years 2008 – 2023. Employing various models, including Heckman model, Probit model and Pooled OLS we show that the higher management compensation, better asset management and government ownership is important to attracting institutional investment. Solid profitability, higher shareholder concentration, and lower ratio of CAPEX to depreciation are positively associated with the level of institutional investment. The predictability of profits has not been found to significantly affect the investment decision. Extreme changes in institutional ownership of larger than 15% in either direction are associated positively with changes in the level of dividend yield, shifts in shareholder concentration, changes in the CEO compensation, operational growth and size of the firm. Managers of the real sector companies can employ our findings to make their company more attractive for an institutional investor. Regulators can use this information to demand certain changes in corporate governance and by supporting certain companies or sectors by taking a partial position in them. Investment bankers can use the findings to improve their clients’ equity stories for fundraising.