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Path and Performance of Institutional Investors in Corporate Governance

Author: ZhouYan
Tutor: LanFaQin
School: East China Normal University
Course: World economy
Keywords: corporate governance institutional investor path performance empirical study
CLC: F224
Type: Master's thesis
Year: 2009
Downloads: 439
Quote: 3
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Abstract

With the constant development of economy, more and more specialists and scholars are focusing on and researching the issue of corporate governance, surrounded by numerous viewpoints of influencing and improving corporate governance ,which can be regarded as to the extend of "letting a hundred schools of thought contend". Over the past few years, institutional investors are becoming a vigorously emerging force of capital market, along with the rapid growth of financial market; their participation and impact on the corporate governance have increasingly expanded. Chinese capital market has recently witnessed profound, systematic reforms, which completely make Chinese institutional investors a positive force influencing the corporate governance of listed companies, thus creating conditions for institutional investors to participate in corporate governance; meanwhile, the reforms have found its way into China. Expounding on the basic of the approach through which institutional investors from home and abroad participate in corporate governance, this article conducts analysis and discussion on the performance of their participation in corporate governance ,combined with empirical examples that institutional investors from home and abroad participate in corporate governance, hoping to play enlightened roles for the Chinese listed companies and institutional investors in performing better in the participation in corporate governance after non-tradable shares reform through discussions of various issues in corporate governance of listed companies by institutional investors.First of all, on the basic of introducing concepts such as institutional investors’ participation in corporate governance etc. studying a great number of literature data, this article summarize the 2 major contrary views of institutional investors’ participation in corporate governance held by international financial academies. Plausible on both sides, the views have both dependency and shortage in terms of theory and practice, which further forms 2 international schools of institutional investors’ participation in corporate governance. In my opinion, however, they are able to be unified, which can be considered the optimistic estimation of the potential benefits brought by institutional investors’ participation in corporate governance as well as the cautious dissection of tough problems and obstacles to be met.Based on the above idea, this article makes further theoretical analysis of institutional investors’ participation in corporate governance, expounding from 3 major aspects the reason why institutional investors participate in corporate governance; the emergence of institutional investors and whose energetic action in participating in corporate governance will secure fundamental change, which in turn brings forward several pragmatic and practicable methods put forward internationally at present of how institutional investors participate in corporate governance.After studying the research findings of institutional investors’ participation in corporate governance on international scale, the article turns its view towards China. Using investment funds as the representative of institutional investor discussed in this article, in line with the international experience, this article discusses several possible feasible paths through which institutional investors participate in corporate governance under current economic situation of China, and explores the paths used by Chinese institutional investors when participating in corporate governance one by one combined with existing cases that have already happened in China’s financial market.On the basic of theoretical and practical analysis and elaboration hereinbefore, the article makes empirical studies on performances of the listed companies that Chinese institutional investors participate in corporate governance via quantitative methods of linear regression.For the performance variable, considering that the man-made influence existing in the share prices of Chinese listed companies, it can not reflect the true performance of the company; same situation applies to its related rate of return. As a result, we select return of equity which is representative and generally applicable as the standard of measuring a company’s performance instead of numerical factors related to share price. The article picks up 224 listed companies as the samples of research data if the equation according to the critical value of shareholding proportion based on international experience of institutional investors’ participation in corporate governance. According to the result of descriptive statistics and regression analysis, it indicates that the united force of Chinese institutional investors can develop hugely the shareholders’ rights. Except individual dispersed ones, the overall linear relationship between explaining variables and explained variables is quite clear. There are positive correlation existing between the shareholding proportion of institutional investors and return of equity of listed companies, whose correlation is not as obvious as that of return of equity in the previous year. It can be seen that institutional investor is a positive force influencing corporate governance, while for the Chinese institutional investors, and there is still a long way to go in developing shareholders’ rights, participating in corporate governance and boosting the performance of listed companies.Aiming at the path and performance study on the participation in the corporate governance by Chinese institutional investors, The article makes outlined summarization, involving several aspects of Chinese institutional investors’ participation in corporate governance, bring forward some preliminary opinions of policies; the detailed theory and practice await further study and exploration in the future.

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