Employing an event study approach on the US-China trade conflict, we find that Chinese listed firms with institutional investor holdings exhibit smaller announcement loss than their counterparts. We also examine the heterogeneous effects of firms. Specifically, the positive effect of institutional investor holding is larger for firms with foreign exposure or in provinces with higher degree of marketization. Besides, institutional investor holding also reduces firms’ financial cost of refinancing and improves their long-run performance given the same announcement loss. These findings help understand the role of institutional investor in financial stability from the micro perspective.