Using data of firms making up SBF120 during 2005 and 2010, this paper examines the influence of institutional investors on corporate governance and the relationship between institutional investors and firm performance in France. Institutional investors have become active in strengthening corporate governance with an eye of enhancing corporate value since early 2000s. They exercise the voting rights at the general shareholders’ meeting and some of them engage in dialogue with investee companies. The results suggest that corporate governance was enhanced by institutional investors. However, it was found that there is not a statistically significant difference between the changes in share ownership of institutional investors and firm performance. By classifying the firms into three groups based on the change in the ownership share of institutional investors during 2005-2010, I observe that the mean value of ROE in group 3 is higher than in other groups, indicating that the group with the highest increase of institutional investor’s ownership during the period shows better performance than other groups. This implies that institutional investors select firms for investment based on the expected performance of ROE.
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