Institutional ownership and firm performance by life-cycle stage

Institutional investors have been shown to impact firm performance. We extend on the literature by documenting how the impact varies with a firm's life cycle. Utilizing a large sample of U.S. corporations, from 1990 to 2020, empirical findings suggest a positive association between institutional ownership and firm performance for firms in the introduction and decline phases of the life cycle. Firms in the intro or decline phases with high institutional ownership exhibit a positive association between asset turnover and operating performance and an inverse association between operating expenses and firm performance. In these phases the drivers of firm performance function better in the presence of institutional ownership. We conclude that institutional investors' ability to positively impact performance is most significant at firms that require their involvement the most. Our results are robust to alternative firm life-cycle measures, model specification, and potential endogeneity concerns.