Institutional ownership and firm performance in the global shipping industry

•Institutional investors have a positive influence on the market value of shipping firms.•This valuation effect is driven by institutions with a short-term investment horizon.•Short-term investors, through the threat of exit, mitigate agency conflicts and improve corporate governance.•Shipping firms dominated by short-term investors are better able to exploit growth opportunities. We examine the effect of institutional investors on the valuation of listed shipping firms. Institutional investors have a positive influence on the market value of shipping firms, confirming that institutional ownership is a “universal” corporate governance mechanism. This valuation effect is more pronounced in firms dominated by institutional investors with a short-term investment horizon. It is also stronger in firms with high stock liquidity, suggesting that short-term investors, through the threat of exit, are able to mitigate agency conflicts and improve corporate governance. Investment regressions indicate that shipping firms with a larger fraction of short-term investors are better able to exploit growth opportunities.