The impact of institutional investors on firms’ performance in the context of financialization

This paper investigates the impact of U.K. institutional holdings on the financialization process. Using panel data analysis, we find that their holdings have a positive impact on the financialization. Investigating the source of this impact, we find that their portfolio companies outperform their peers matched by industry and size. Together, these findings suggest that institutional investors add value to the capital market and play an instrumental role in shaping the financialization process. Granger's causality test reveals that institutional holdings Granger cause financialization process, and the relationship is one‐way direction.