The results also indicate that there is a significant negative relationship between business
risk and institutional ownership variables (both IO and PIO). Therefore, institutional investors
tend to invest in low business risk firms, because firms with high volatility in their returns are
likely to have a high probability to default and to be bankrupted. This result is consistent with
Badrinath et al. (1989) and Aggarwal and Rao (1990). It is worth noting that this result
contradicts the role of institutional investors as a monitoring device to minimize agency costs
and therefore to minimize bankruptcy costs. In other words, this result contradicts the
suggestions of Huddart (1993), Admati et al. (1994), and Maug (1998). Hence, there is no
empirical support for the role of Jordanian institutional investors as monitoring device to
minimize bankruptcy costs, instead such investors will avoid investing in firms with high
income volatility and more likely to be bankrupted.