The Nexus Between Institutional Investors and Firm Growth in Pakistan’s Non-Financial Sector: A Panel Data Analysis

Abstract

Institutional investors exert a significant influence on firm growth by enhancing firms earning potential, profitability, and shareholder wealth, particularly in developing countries. Recognizing the importance of this phenomenon within the corporate sector, this study investigates the relationship between institutional investors and firm growth in Pakistan. This study collected data from 100 non-financial companies listed on the Pakistan Stock Exchange (PSX) from 2013 to 2022 (10 years). Sales growth was used to measure firm growth, while the ratio of shares owned by institutional shareholders to total outstanding shares was employed to assess institutional investor holdings. The generalized method of moment (GMM) was applied to analyze panel data and test the study hypothesis. The findings revealed a positive relationship between institutional investors and firm growth supporting active monitoring role. Furthermore, firm growth is positively associated with firm profitability, while it is negatively related to firm size and leverage. These results are valuable for policymakers, investors, and firms, highlighting that firm growth is associated with institutional ownership in Pakistan. These insights are especially relevant for decision-makers, managers, and investors. It is essential for investors to thoroughly assess the ownership structure of firms before making investment decisions to ensure more informed and rational choices.