Institutional Investors and Firm Performance: Evidence in the Oil and Gas Industry
Abstract
This study investigates the effect of institutional investor ownership on the financial performance of firms in the oil and gas (O&G) industry. Using a panel of the 50 largest O&G companies worldwide from 2006 to 2020, we test the hypothesis that institutional investors enhance shareholder value and market capitalization through active monitoring and strengthened corporate governance. To address endogeneity and unobserved heterogeneity, we apply the System Generalized Method of Moments (GMM-Sys). Results demonstrate that institutional ownership has a positive and statistically significant effect on Tobin’s Q, supporting the view that these investors can improve governance and align managerial decisions with long-term value creation. Dividend payouts also display a positive association with performance, consistent with agency theory. Carbon
emissions are likewise positively related to valuation, indicating that carbon-intensive operations continue to yield substantial returns despite increasing environmental pressures. In contrast, firm size, leverage, and ESG scores do not emerge as significant determinants of performance, possibly reflecting industry-specific dynamics and measurement constraints. Overall, the findings highlight the dual reality in O&G valuation – where both investor-driven governance improvements and short-term drivers, such as dividends and fossil-fuel-based revenues, shape performance. The study contributes to the literature on institutional ownership with industry-specific evidence, suggesting that if institutional investors adopt long-term, sustainability-oriented strategies, they could play a pivotal role in guiding high-emission sectors through the transition toward lower-carbon business models. Future research should investigate institutional investor heterogeneity,
investment horizons, and their role in advancing ESG practices and long-term value creation in the O&G industry.
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