Does institutional ownership affect firms' international investments? empirical evidence from India

Abstract

The preference of firm internationalization is shaped by different groups of owners and the institutional environment in which the firm operates. Past studies have largely ignored the heterogeneity among the controlling groups in influencing the internationalization decision in emerging economy firms. In this study, the authors draw understanding from behavioral risk perspective and institutional theory to inspect the risk perceptions and propensities of various ownership groups such as lending institutions, domestic mutual funds and foreign institutional investors (FIIs). Empirical analysis from a sample of 2695 unique BSE-listed nonfinancial Indian firms during 2005–2019 period were collected using Tobit panel regression analysis. The findings reveal that firms' international investments are impacted differently by ownership share of different types of institutional investors after controlling for firm-level resources and capabilities. While lending institutions and FIIs are supportive of foreign investments by firms, domestic mutual funds are not supportive of this strategic decision on foreign investment. Further, our results show that family ownership, measured in terms of family shareholding, negatively moderates the lending institutions toward internationalization and does not impact the FIIs and mutual fund investor's decision regarding the foreign investments. To the best of the author's knowledge, the current paper is the first to address the risk perceptions of various ownership groups on firm's international outlook in an emerging economy context with the latest data. This practical perspective helps the organizations in managing the ownership holdings.