Whom do institutional investors serve as stewards? An empirical analysis of stewardship code-compliant investors in Korea

Institutional investors now exceed individual investors in number of shares held. To provide empirical support for the stewardship role of institutional investors, we examine the relationships of the presence of stewardship code-compliant institutional investors among shareholders with micro- and macro-oriented outcomes in Korea. We find that firms held by code-compliant investors have higher firm value, dividend payouts, and ESG ratings. Our results imply that code-compliant institutional investors act as stewards of their investee firms, fund beneficiaries, and market or society, in line with agency theory, agency capitalism, universal ownership, and stakeholder theory. Using latent class mixture modeling, we assign firms into latent classes according to the particular outcomes that their institutional investors pursue. We further conduct multinominal logit regression and find that firm characteristics differ between latent classes that emphasize distinct outcomes. Our study provides empirical evidence supporting multiple theoretical frameworks that have traditionally been discussed in a normative manner.