Theories And Empirical Studies On Institutional Investors' Participating In Corporate Governance

Since the 60s of the 20th century, the global financial market which is reflected in a rapid development of institutional investors, particularly institutional investors of Anglo-American countries control of the capital-GDP ratio increased year by year. The growth of institutional investors completely changed the shareholding structure, becoming an important power of corporate governance, that is, institutional investors became the backbone of supervision of listed companies. China's stock markets more easily follow the Anglo-American (AS) mode. China's stock market in 2005 to start Split Share Structure Reform of listed companies Fundamental make the interests of all shareholders of listed companies convergence, optimizing the corporate governance structure, and laid a good foundation for stable and healthy development of China's stock market. Split Share Structure, this particular design of the system, will soon become history, all share of the listed company becoming tradable will subsequently become a reality.In the future who will supervise the listed company become the center of world attention. In 1999, China's administration put forward the decision of "extraordinary development of institutional investors" aiming at this purpose:we hope that China's institutional investors also like the United States and other developed countries, to stabilize the stock market and become a good supervisor. In the new environment institutional investors are able to assume oversight responsibilities of listed companies?Based on the unbalanced panel data study of listed companies between 2003-2007, we found that institutional investors prefer to invest higher quality of corporate governance and higher earning capacity of listed companies. The model in chapter four shows considering the cost of supervision of institutional investors and corporate "insiders" moral hazard the Senior management of the company holding the larger proportion of the shares the more easy to get institutional investors favor, the results of our empirical study support the conclusion of the model. We also study whether the institutional investors prefer to invest small capitalization stocks which easily manipulated to speculate, and we found that they preferred the large capitalization stocks than small ones. Therefore summary we draw a conclusion about the above study of the preference of sharesholding of institutional investors that China's institutional investors in choosing stocks, is ready to "active" monitoring listed company and prepare long-term investment, they are not only wish to "dominate" and "speculation" to seek short-term interests.We also found that the variable lag-instratio (lag proportion of institutional ownership) can significantly affect the company's current corporate governance quality, and it has a positive effect on improving corporate governance quality. We also found that by "active" supervision institutional investors can enhance the corporate governance quality of listed companies so as to enhance the company's profitability. The results showed that the variable lag-instratio and return on assets (ROA) positively correlated, indicating the involvement of institutional investors can improve the corporate governance quality of listed companies so as to enhance the company's profitability. Empirical study also found the variable lag-insratio and the variable Q which response to the market value of listed companies have a significant positive correlation, indicating involvement as shareholders can improve the corporate governance quality of listed companies so as to make the company's performance in the secondary market to be enhanced. Therefore, we assert that institutional investors participate in corporate governance by enhancing the level of corporate governance to enhance company's market value.Next, this paper focus on the most representative kinds of institutions of institutional investors-"Securities Investment Fund". The research methods and empirical findings are similar to the study of the institutional investors. By studing the preference shares of the Fund we found that China's securities investment funds is ready to "active" monitoring listed company and prepare for long-term investment, and they are not only wish to "dominate" and "speculation" to seek short-term interests. What has happened in the early stage of the development of Fund industry is not the mainstream model in current market.Finally, for the widespread violations by controlling shareholder in China's listed companies, institutional investors will be included in the analysis framework in order to investigating whether institutional investors supervise the controlling shareholders of listed companies while the participating in corporate governance and reduce the "hollowing out" behavior. Either T test or Ordinary Least Square empirical results shows that the more share hold by institutional investors, the smaller scale of Private Benefits of Control. So we draw the conclusion that:the scale of Private Benefits of Controle is reduced by institutional shareholding, that means institutional investors is the "active" monitor while participating in corporate governance, but the strength and effectiveness of supervision is not enough and need to be further strengthened.