1. The Effect of Institution Ownership on Payout Policy
A Regression Discontinuity
Design Approach
Reporter: Liu Siwen

2. 1 2 3 4 5 CONTENTS Abstract Data and Methodology Main Results
Alternative Explanations and
Robustness tests 5
Conclusion

3. PART 01
Abstract

4. Abstract
We Find that:
Higher institutional ownership causes firms to pay
more dividends and repurchase more shares. 1
We also find evidence of a causal effect on proxy voting,
corporate investment, R&D, and equity issuance. 2
Agency models where concentrated ownership lowers the marginal cost of delegated monitoring. 3

5. PART 02 Data and Methodology
Briefly discusses the empirical strategies, the data and the variables used in the tests.

6. Regression Discontinuity Methodology
Data and Methodology
Briefly discusses the empirical strategies, the data and the variables used in the tests.
Data
Our sample consists of the Russell 1000 and Russell 2000 index constituents from 1991 until 2008.
Regression Discontinuity Methodology
To measure the effect of the Russell index assignment on various firm policies, we implement a regression discontinuity methodology similar to Imbens and Lemieux (2008) and Lee and Lemieux (2010).
Randomness of the Index Assignmengt an Float Adjustment
Our research design relies on the conditions of regression discontinuity being well specified in our setting.

7. Main ResMain Results Main Resultsults
PART 03
Main ResMain Results Main Resultsults
Presents the main empirical results

8. institutional ownership
Main Results 1
In this section we test whether the discontinuity in index weights around the Russell 1000/2000 threshold leads to a discontinuity in institutional ownership.
Higher exposure to
institutional ownership

9. Institutional Ownership and
Main Results 2
Institutional Ownership and
Payout Policy
We test whether this difference in ownership has an effect on payout policy
We can point to a causal effect of institutional ownership on dividend payment, share repurchases, and total payout. Institutional shareholders force managers to disgorge more cash to shareholders when they become owners of the firms for reasons exogenous to payout policy.

10. 1. 2. Monitoring and the Agency Cost Hypothesis Main Results 3
We find that firms with low market-to-book ratio, low market-to-book and high cash flow firms, low profitability, high CEO compensation seem to drive the effect we observe in the overall sample. 1.
We also find that firms with higher analyst coverage have slightly lower discontinuity estimates, and firms with high response to earnings surprises have lower higher discontinuity estimates. 2.

11. Institution type and active vs. passive monitoring
Main Results 4
Institution type and active vs. passive monitoring
We find that three quarters of the increase in institutional ownership comes from “transient institutional shareholders” as defined by Bushee(1998).
Institutional ownership and other corporate policies
Institutional ownership causes an increase in R&D investment, corporate investment, as well as equity financing.

12. Alternative Explanations and Robustness tests
PART 04
Alternative Explanations and Robustness tests
Discusses alternative explanations, robustness checks, and additional tests.

13. Alternative Explannations and Robustness Tests
We examine several
different regression
discontinuity
estimates.
We conduct
falsification tests on
our dependent variables
around the threshold.
We use a number of
alternative definitions
of dividend, share repurchases,
total payout, corporate
investment, and
financing variables.

14. PART 05
Concludes

15. Conclusion Conclusion 1. Conclusion 2. Conclusion 3.
We find that higher institutional ownership causes an increase in the redistribution of cash to shareholders.
Conclusion 2.
We find that institutional ownership increases proxy-voting participation, and suggestive evidence that institutional ownership increases R&D expenses, corporate investment, and equity financing.
Conclusion 3.
Our results also suggest that stock markets have a large causal impact on the real economy: a random inclusion in a stock market index can have a significant influence on the managerial behavior and corporate policy.

16. THANK
YOU