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An Empirical Study on Institutional Investors, Corporate Governance and Corporate Performance of the Listed Companies in China

Author: DengYing
Tutor: TangGuoQiong
School: Southwestern University of Finance and Economics
Course: Financial Management
Keywords: Institutional Investors Corporate Governance Corporate Performance
CLC: F275;F224
Type: Master's thesis
Year: 2010
Downloads: 638
Quote: 1
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Abstract


In the late 1980s, institutional investors in western countries have begun to actively participate in corporate governance. Institutional investors in these countries have formed another kind of important external governance mechanism. According to the foreign experience, the development of institutional investors and their participation in the corporate governance is closely related with the institutional environment. The development of institutional investors is rapid during these years though which only has a short history in our country. With the development and growth of institutional investors, they become actively participate in corporate governance in order to preserve their rights and access to long-term investment returns. At the same time, a series of reforms in securities market in our country gave institutional investors more rights which enhanced the ability to participate in corporate governance.Currently, study on institutional investors to participate in corporate governance behavior and its effects still limited. In special background of our country, institutional investors will become an effective alternative mechanism which will play a great role in the area of corporate governance instead of the state-owned shareholders and external market supervision. Therefore, to explore the role of institutional investors in corporate governance and enterprise value is of great practical significance, not only for the securities market, but also for the listed companies.This writing, in which is combining two kinds of research methods: normative study and empirical study. There are five parts in this paper:PartⅠ:Introduction, including the background and the significance of the research, domestic and international literature review, the main contents and the methodology in this paper.PartⅡ:Theoretical analysis of institutional investors’participation in corporate governance. Firstly, the concept of institutional has been defined, and of which the features have been analyzed. Meanwhile, a clear object of the study has been defined as well. Besides, the writer has explored the development path of various types of institutional investors in China in this part. Secondly, the writer has explored the internal and external driving forces of institutional investors for participating in the corporate governance and the ways that they participate in corporate governance. Finally, come to the conclusion that institutional investors have played a positive role in strengthening management supervision and constraint, continuously improving the independence of the board of directors, and reducing the occupancy of funds by related parties, etc.PartⅢ:Research design. This section is the essential part of this empirical research. This paper selected the listed companies in A-share market from 2003 to 2008 and chose securities investment funds, securities companies, insurance funds, corporate annuities and QFII as the representatives of institutional investors. The writer used the top-10 holdings of shareholders in the proportion of institutional investors as explanatory variable, and chose three corporate performance indicators, including Tobin Q, ROE and Core ROA, as the dependent variable to inspect corporate performance in the aspect of company’s share price performance, equity expansion ability, and core performance respectively.PartⅣ:An empirical analysis of institutional investors’impaction on corporate performance. Descriptive statistics shows that institutional investors holding only takes a small percentage of shares and the proportion of inter-company holdings of institutional investors are not balanced. Dynamic view, from 2003 to 2007, the average proportion of institutional investors holding increased year by year, which indicates that the power of institutional investors are growing and will promote their participation in corporate governance, as well as will eventually have impact on the performance of enterprises. This empirical results show that:(1) the proportion of institutional ownership and the three indicators of corporate performance were significantly positively correlated; (2) the lager the ratio of the proportion of institutional investors holding to the first shareholders, the greater the balances role the institutional investors will play, which will be of help to reduce agency costs and enhance the company’s performance; (3) The shareholding structure of listed companies can affect investment decisions of institutional investors. It will attract investments from the institutional investors when the company’s equity relative concentrates.Part V:Empirical results and policy recommendations. Based on the summary of the full text, the writer gives some advice to governance, listed companies and institutional investors in this part, which will benefit to promote the development of institutional investors and promote institutional investors to care more about corporate governance.The main contribution of this paper are as follows:(1) It has formed a broad group of institutional investors which will provide more comprehensive evidences for institutional investors to participate in corporate governance when select samples, such as securities investment funds, insurance funds, pension funds, QFII and so on. (2) To imply that institutional investors have impact on corporate governance through the relationship between institutional investors and the company’s performance on research perspective. And the research reveals that the proportion of institutional ownership and the three indicators of corporate performance were significantly positively correlated. (3) As to the selection of variables, this paper stated corporate performance in different perspectives. And it chose three corporate performance indicators which reflect corporate performance, including Tobin Q, ROE and Core ROA, as the dependent variable to inspect corporate performance in the aspect of company’s share price performance, equity expansion ability, and core performance respectively. It is found that the more shares the institutional investors hold the higher the Tobin Q.Inadequacies of this paper includes:(1) Methods in the study having not used the panel data regression, and insufficiency of the multi-year trend analysis. (2) Not taking the endogenous problem between institutional investors and corporate performance into account. (3)No study on the relation between the changes of the listed companies’behavior and the changes of institutional investors shares holding in this paper.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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