THE IMPACT OF INSTITUTIONAL OWNERSHIP STRUCTURE ON THE SUSTAINABILITY OF STOCK RETURNS: THE MODERATING ROLE OF FINANCIAL REPORTING QUALITY

Abstract

This work studies the institutional ownership structure impact on the persistence of stock returns, taking into account the moderating financial reporting quality (FRQ) in an emerging market, namely the Iraq Stock Exchange (ISE). Although institutional investors are typically active monitors of corporate performance, the extent to which their engagement fosters sustained equity return stability remains contested, particularly in settings where governance mechanisms are still evolving and transparency levels are low. Drawing upon panel data from publicly listed Iraqi firms between 2012 and 2021, the current work uses a quantitative methodology to examine two core hypotheses. The first hypothesis suggests that institutional ownership significantly enhances the stability of stock returns, calculated by return on equity (ROE). The second assesses whether FRQ serves as a mediating factor that strengthens this relationship. Regression analyses were conducted to test these hypotheses, incorporating diagnostic assessments and control variables. According to the findings, institutional ownership is positively linked to firm profitability and return persistence. However, the moderating influence of FRQ was found to be statistically insignificant, suggesting that the level of transparency in Iraq's financial reporting may be insufficient to amplify the monitoring role of institutional investors. These findings have significant implications for investors, managers, and regulators wishing to enhance governance systems and disclosure quality. The research also suggests potential avenues for future research, for instance, using alternative measures of FRQ or applying more complex econometric models, for example, panel fixed-effect models.