The effect of investor sentiment and the structure of shareholder ownership on corporate investment

Purpose> This paper aims to investigate the relations amongst investor sentiment, the structure of shareholder ownership and corporate investment.Design/methodology/approach> This paper develops a theoretical model, proposes hypotheses based on the predictions of the model and conducts empiric...

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Bibliographic Details
Published in:International journal of managerial finance 2023-01, Vol.19 (1), p.155-172
Main Authors: Li, Hui, Grundy, Bruce
Format: Article
Language:English
Subjects:
Bias
Hypotheses
Institutional investments
Investor behavior
Optimism
R&D
Rates of return
Research & development
Stock prices
Stockholders
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Summary:Purpose> This paper aims to investigate the relations amongst investor sentiment, the structure of shareholder ownership and corporate investment.Design/methodology/approach> This paper develops a theoretical model, proposes hypotheses based on the predictions of the model and conducts empirical tests. The primary method is panel regression with fixed effects. The sample covers the US data for the period between 1980 and 2018.Findings> This paper finds that firms with a higher proportion of retail investors invest more than otherwise similar firms. In the low-sentiment periods, the financially constrained firms invest less than the non-financially constraint firms. The positive effect of residual retail ownership on the investment level is higher for firms with a higher idiosyncratic risk.Practical implications> The results suggest that larger share ownership of the relatively informed institutional investors may serve as a mechanism that could reduce the degree of overinvestment caused by higher investor sentiment and the over-optimistic of the relatively uninformed investors.Originality/value> This paper provides an incremental theoretical and empirical contribution to the relations amongst investor sentiment, corporate investment and the structure of shareholder ownership.
ISSN:1743-9132
1758-6569
DOI:10.1108/IJMF-11-2021-0558