Examining the relationship between institutional investment and company value in each stage of the life cycle

Abstract:

The main purpose of this research is to examine the relationship between institutional investment and the value of the company in each of the stages of the life cycle. In this research, the value of the company is considered as a dependent variable and the level and concentration of institutional investment is considered as an independent variable, so that the value of the company is examined by taking into account the adjustment variable of the life cycle. For this purpose, first, a statistical sample using the variables of sales growth, dividend ratio and capital expenditures is separated into companies in the growth, maturity and maturity stage, and then the independent variable of institutional investment is used as the level and concentration. It is used as the dependent variable. Size, growth and debt variables are used as control variables.                                                                                                                          

Then, using multivariable regression equations, the research hypotheses have been checked, the required data have been extracted from the financial statements of 130 companies during the years 1384 to 1388. In general, the research results indicate the existence of a negative relationship between the level and concentration of institutional investment and the value of the company.        

Key words: ownership structure, institutional investment, company value and company life cycle

Introduction:

The increasing presence of institutional investors among the shareholders of companies and the potential influence that these shareholders can have directly through ownership and indirectly through exchange have their own shares on the company's value. The traditional thinking and view that stated that the distribution of the company's stock ownership has no effect on the company's value was challenged by Jensen and Meckling's studies. These studies predicted that the company's value is a function of how the shares are allocated between insiders (such as managers) and outsiders (such as institutional investors) of the company.                                                                                       

Mag concluded that institutional investors' use of their ability to monitor the management and performance of the company is a function of the amount of their investment.                                                              

Although many researches have been conducted regarding the relationship between institutional investment and company value, none of these researches have investigated this relationship in different stages of the life cycle. The importance of this research is that it experimentally shows managers, investors and other decision makers which of the stages of the company's life cycle (growth, maturity and decline) is the most appropriate time for investors to enter and use the benefits of their investment.                                     

1-1 Introduction

One ??of the most important issues in determining the value of companies is their ownership structure. The ownership structure is a measurement criterion for concentrated ownership, it means collective ownership defined as the size of shareholders. The composition of the shareholders of different companies is different. Part of the ownership of the companies is in the hands of shareholders and legal entities. To monitor the performance of company managers, this group mainly relies on publicly available information such as published financial statements. Meanwhile, another part of the ownership of companies is in the hands of professional shareholders, who, unlike the first type of shareholders, have valuable internal information about the company's future prospects, business strategies and long-term investments, through direct communication with the company's management.

Institutional shareholders are individuals or institutions that buy and sell a large amount of securities: such as public and private banks, pension funds, insurance companies and social security organizations, funds and investment companies, foundations and institutions that invest in other public companies. Therefore, institutional investors have become the largest group of shareholders in public companies.Therefore, institutional investors have become the largest group of shareholders in public companies. These shareholders have the potential to influence the activities of managers directly through ownership and indirectly through the exchange of their shares. In this case, the direct or indirect influence of institutional shareholders can be very important.

In Iran, there have been many researches on the relationship between institutional investment and company value, but none of these researches show this relationship. It has not been investigated in the different stages of the life cycle.

The life cycle theory states that companies and industries, like living organisms, are born one day (creation stage), grow (growth stage), mature (maturity stage) and die (decline stage). There are different behaviors in the field of sales, investment and profit sharing.

This study examines the relationship between the level and concentration of institutional investment and the company's value in each of the stages of the life cycle, and it is expected that this will be different in each of the aforementioned stages.

But what is the importance of research and why are we studying about it? So far, many researches have been conducted on the relationship between the ownership structure and the value of the company, but in none of these researches, the effect of the life cycle as a moderating variable on the value of the company has not been considered. In fact, the main purpose of this research is to examine the relationship between the level and concentration of institutional investment in each of the stages of the life cycle. Due to the discovery of the above relationship, this research can be placed as a light for investors and represents the issue that an investor, taking into account the different levels of the organization's life, as well as the level and concentration of investment An institution should invest in the value of the company at an appropriate time and benefit from the benefits of the purchased shares.

In the first chapter, after stating the research problem, we will discuss the importance and necessity of the research, we will also state the research objectives in the form of scientific and practical objectives, and then we will refer to the theoretical framework, and then we will discuss the research hypotheses and the definition of research words and terms.

2-1 statement of the problem:

This research predicts that according to the effective monitoring theory, the presence of institutional investors may lead to a change in the behavior of companies, which originates from the monitoring activities that these investors perform. For this reason, we predict that institutional investment in each stage of the life cycle will affect the value of the company.

Under the hypothesis of effective supervision, due to the amount of invested wealth, institutions are likely to actively manage their investments. Based on this view, institutional investors are skilled shareholders who have a relative advantage in gathering and processing information.

Generally, researches conducted confirm this hypothesis, for example Shleifer and Pound found that investment companies They spend a lot of time on investment analysis. Due to the volume of investment and the expertise of the institutional owners, their presence causes management supervision.

Currently, our country is seeking to privatize state-owned companies and offer them in the stock exchange in fulfillment of the 44th principle of the constitution. Sometimes it is criticized in the newspapers that the objectives of Article 44 policies in privatizing and strengthening the private sector are not realized and the shares of state-owned companies are openly offered on the stock exchange and secretly acquired by the government through institutional investors who are generally government. Now the question arises that if this claim is true, is this privatization in the interest of the society? In other words, is this change of ownership in the framework of the government, regardless of the realization of privatization, useful and will it cause the prosperity of the aforementioned industries? The answer to the question depends on the effect of the presence of institutional investors in the company's ownership structure on the company's performance and value.