Stock price crash risk and institutional ownership: Evidence from Borsa Istanbul

This paper examines the relationship between institutional ownership and stock price crash risk for non-financial firms listed on Borsa Istanbul from 2005 to 2023. The findings show that greater institutional investor participation increases the risk of future crashes, supporting the short-termism theory rather than monitoring theory. This result aligns with research on emerging markets, such as China and Vietnam, but it contrasts with evidence from developed markets such as the US. The relationship is statistically and economically significant in the traditional framework that covers only investment funds and investment trusts, including local and foreign institutional investors. A fixed-effect model, using the first-difference of overall and local professional institutional ownership, provides robust evidence for short-termism theory: institutional investors heighten crash risk by reducing holdings (i.e., “voting with their feet”). However, this approach does not yield statistically significant results for foreign institutional investors.