Common Institutional Ownership and Corporate Financial Investment

Excessive financial investment may impede corporate sustainable development and overall economic growth. However, the role of common institutional ownership on corporate financial investment remains underexplored. To fill this gap, this study investigates whether and how common institutional ownership influences corporate financial investment using a sample of Chinese listed firms from 2009-2022. We provide evidence that common institutional ownership significantly reduces financial investment and exacerbates investment structure bias towards real investment. Mechanism tests show that common institutional ownership inhibits financial investment by strengthening financing capacity, promoting operational efficiency, and increasing innovative activities. The financialization inhibitory effect is more pronounced among single-segment firms, less competitive industries, and firms located in regions with higher levels of future-oriented culture. Furthermore, common institutional ownership mitigates the negative effect of financialization on the future corporate core performance. Overall, this study provides novel empirical evidence on the positive role of common institutional ownership in real economic development.