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The paper examines how economic policy uncertainty (EPU) would impact the clique behaviour of institutional investors. By probing the link between EPU and the shareholdings of institutional investors, we find that EPU prompts institutional investors to clique, especially in enterprises with sound social performance, experienced executives, high analyst coverage, state property, and large scale. EPU may facilitate institutional investor cliques through channels of exacerbating agency problems, enterprise cash flows, enterprise risk and enterprise-investor information asymmetry. Namely, EPU motivates institutional investors to clique to tackle EPU-induced challenges. Evidence further demonstrates that institutional investor cliques aggravate the negative impact of EPU on macroeconomy but mitigate that on business performance. The findings suggest that EPU fuels institutional investor cliques and both impede macroeconomy.
He et al. (Wed,) studied this question.