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The Impact of Institutional Shareholdings on Price Limits

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Abstract

We explore whether institutional shareholders would affect the price limits in Taiwan due to that the price limit system in Taiwan is lower than those of other countries. In this study, We reveal that various institutional shareholding ratios including domestic institutional shareholding ratio and foreign institutional shareholding ratio significantly affect several stock limit ratios including the stock limit ratio, stock price up-limit ratio, and stock price down-limit ratio rarely concerned comprehensively in the relevant studies. In addition, we argue that our interesting findings are likely interpreted as follows: First, domestic institutions might buy stocks to price up-limit to improve their performance. Second, institutional investors might beat their competitors by selling competitors’ stocks to price down-limits. Third, foreign institutions might sell stocks to price down-limits after taking many short positions in index futures. We deduce that the Taiwan price limit system might provide opportunities for institutional investors, stakeholders, and even insiders to manipulate share prices because the price limit likely occurs in Taiwan Stock Exchange.

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Notes

  1. We argue that the firms with the repurchasing ratio and repurchasing shareholding ratio over total shareholding ratio as well as the firms suffering losses still pay if rewards to the directors on the board are likely to create corporate governance issues.

  2. In this study, aside from employing the data over the data period 2005–2009, since this data period covers the periods before, within, and after the 2008 stock market crisis. n addition, we also have extended our data period to 2014, and the revealed results are still similar to those shown in this study.

  3. Even though the firms listed in TWSE are used in this study, the results are similar to those obtained by employing the stocks that belong only in the high-tech industry because the market value of the high-tech industry is approximately 50% of the market value of the firms listed in TWSE.

  4. In order to make our results robust, we also focus on the market condition by adding yearly dummy, and on the stock volatility by adding beta coefficients of individual stocks. The results of this study are similar to those obtained by using stocks that belong only in the high-tech industry because the market value of the high-tech industry is approximately 50% of the market value of the firms listed on TWSE.

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Authors and Affiliations

  1. Department of Finance, Ming Chuan University, Taipei, 111, Taiwan, ROC

    Manhwa Wu

  2. Department of International Business, Soochow University, Taipei, 100, Taiwan, ROC

    Paoyu Huang

  3. Department of Management Sciences, Tamkang University, No.151, Yingzhuan Rd, Tamsui Dist, New Taipei, 25137, Taiwan, ROC

    Yensen Ni

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  1. Manhwa Wu
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Wu, M., Huang, P. & Ni, Y. The Impact of Institutional Shareholdings on Price Limits. Asia-Pac Financ Markets 27, 343–361 (2020). https://doi.org/10.1007/s10690-019-09296-y

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