Corporate value and ownership structure in the post-takeover period: what role do institutional investors play

Several recent papers show that dissident institutions have more influence with management when the level of institutional ownership in the target firm is high. This paper investigates whether increased institutional ownership and institutional ownership concentration reduce agency costs and thus increase corporate value. We find that corporate value is positively related to institutional ownership but negatively related to institutional ownership concentration. This implies that the linkage between corporate value and institutional ownership is driven by momentum trading and supports the view that the bulk of institutional investors remain passive in regards to monitoring. Whether the relaxation of restrictions on institutional communication and ownership (by individual institutions) would facilitate more efficient managerial oversight remains a debatable point. © 1997 John Wiley & Sons, Ltd.