Publication in the British Journal of Management
Dr. Gerrit Köchlin, Dr. Daniel Neukirchen and Prof. Dr. Peter N. Posch publish their paper " Do Institutional Investors Cate About Operational Leanness?" in the British Journal of Management.
The highlights are:
- For a sample of 12,291 U.S. manufacturing firms from 1998 to 2020, we find a strong relationship between operational leanness and institutional ownership.
- Leaner firms attract a higher proportion of institutional investors, both in terms of ownership and number.
- We find that this relationship is more significant for firms with weak corporate governance and higher monitoring costs, suggesting a moderating effect of perceived lower agency costs. Furthermore, hedge funds show a pronounced tendency towards lean operations.
Abstract:
We investigate the relationship between operational leanness and institutional ownership. Based on a sample of 12,291 firm-year observations of US manufacturing firms from 1998 to 2020, we find leaner firms to attract significantly more institutional investors – both in terms of the fraction of shares held and the number of institutional investors holding shares of the firm. This finding holds in several tests addressing endogeneity concerns. Contrary to studies investigating the relationship between operational leanness and operating performance or credit ratings, our results do not provide consistent evidence that this relationship is also of a concave shape. However, we provide evidence that the relationship is stronger (i) for firms with weak corporate governance and high firm-specific monitoring costs and (ii) for active institutions, suggesting that not only firm performance considerations but also perceived lower agency costs are important mechanisms explaining why institutional investors prefer lean manufacturing firms. Taken together, these findings contribute to our understanding of institutional investors’ preferences in general and across institution types.
Zitation:
Neukirchen, D., Köchling, G., & Posch, P. N. (2023). Do Institutional Investors Care About Operational Leanness?. British Journal of Management.