Institutional holding in belgian small caps: Influence on performance

The influence of ownership structure on firm performance has been the subject of many studies over the years. However, there is no definitive answer to the question of the relationship between the presence of institutional holding in corporate ownership and firm performance, because of the lake of converging empirical demonstrations. The importance of this question is related to the multiple influences of institutional shareholders on corporate governance, strategic direction but also how they control the companies in which they invest. There are commonly three hypotheses about this relationship: positive, negative and neutral. At this stage of research, none of these can be privileged.

The aim of this paper is to apply this research question to a sample of Belgian listed companies in which institutional shareholders invest, using linear models. Our paper is original for two principal reasons. The first one is the nature of the sample which is made by small caps that are poorly analyzed in the literature.  It is true that these ones are characterized by a lack of liquidity, but they present generally important growth perspectives which may draw the attention of institutional investors and imply an activist behavior. Moreover, small caps represent the majority of Belgian listed companies. The second reason which made our paper original is the approach of the performance. In fact, the classic financial approach (accounting and stock-market measures) is developed by stakeholders parameters such as the part of the added value allocated to workers.

Regarding the results, the presence of institutional holding in Belgian small caps was confirmed in 70% of companies considered, also with a high average percentage of ownership (17%). Our study highlights firstly a negative and significant relationship between the institutional ownership and the distribution of dividends by the firms and secondly, a positive but not significant effect of their presence both on accounting performance and on the part of the added value allocated to workers, which reinforces the idea of a logic of long-term investment.