Institutional ownership and investment by private companies

We examine whether institutional shareholders in established private companies promote investment by alleviating funding constraints. Our sample is derived from company share registers and is comprehensive with respect to type of institution and size of shareholding. Institutions give rise to higher levels of investment in intangible assets, and higher external finance. The effects are largest for companies with minority institutional stakes, suggesting that alleviation of constraints is a primary motive for ownership in private companies without taking control. Institutions have more impact on external equity than debt, which differs from the case of companies taken over in leveraged buyouts.