The relationship between heterogeneous institutional investors and operational performance: Evidence from mergers and acquisitions

Abstract

This study investigates the relationship between institutional investors and the inventory performance of companies engaged in mergers and acquisitions (M&As). Specifically, we examine the role of institutional ownership in the selection of target firms and their post-M&A performance. Additionally, we analyze how the effects of institutional investors vary based on their investment horizons and strategies. Our regression analysis reveals that acquiring firms with a large proportion of short-term institutional investors are more inclined to target firms with low inventory levels. This tendency stems from the preference of short-term institutional investors for better current operational performance, which drives decision-makers to merge with leaner firms. In contrast, acquiring firms with long-term institutional investors are more focused on performance improvement, even if the target firms have large inventories at the time of the M&A.

Keywords

• G30
• M10
• M11