Research On Institutional Investors' Selective Ability And The Economic Consequences Of Their Holding Behavior

In 1998, Jintai Fund and Kaiyuan Fund issued in public. That is to say, institutional investors had opened officially in China. China's regulatory authorities support institutional investors'development in many ways,After nearly a decade of development, generally speaking,the role of institutional investors show two sides: in one side, Institutional investors'victory in"Shengli"event; Zhongxin Company "H-Share" program aborted and the institutional investors play their important role in share structure reform. Those cases evidence that institutional investors have begun to "wake up" and play an active role in capital market. However,there are often discordant incidents,Such as 2000's "Inside Story of the Fund","herd behavior"and so on. The institutional investors have brought good and bad effect in meanwhile. The people doubt that institutional investors'role in exchange market of China,as well as questioned the principles and policies of institutional investors'development.Through the play game and the proportion of institutional investors holding affect analysis, we use the institutional investors'sixteen quarter holding data from 2004 to 2007 of non-financial listed companies in China. Holdings of institutional investors divided into different situation: One situation is divided by institutional investors'holding company. According to one-third site of institutional investors'holding proportion,we grouped the sample into three groups,which is high proportion institutional ownership companies, median proportion institutional ownership companies and low proportion institutional ownership companies. According to one-third site of institutional investors'holding number,we grouped the sample into three groups,which is high number institutional ownership companies,median number institutional ownership companies and low number institutional ownership companies. The other situation,according to the investment horizon,which is greater than two quarters or not, institutional investors can divided into short-term and long-term type.We use the integrity files'the disclosure rating results as the measure of the information transparency. Use static and dynamic model to test whether institutional investors can show information interpretation in the selective behavior,the data is from 2004 to 2007 of non-financial listed companies in China. We found that the company as long as holding by institutional investors,Regardless of the proportion of institutional investors shareholding or the number of institutional investors in the company,all institutional investors will choose a better information transparency company to hold, This result existed equally regardless of lag one year or instrumental variables regression test. Such preferences exist not only in static test,but also in dynamic test,Institutional investors would change position according to the transparency of information. Difference is that in a dynamic regression,the long-term institutional investors'shareholding will not change according to the rating transparency of information upward or downward change. These results indicate that the selective behavior of institutional investors are already exist,regardless of short-term institutional investors or long-term institutional investors, they would choose a relatively high rating company to position,the different is the long-term institutional investors'behavior is more stable .Based on the modified Jones(1991)model,according to whether exist industry performance's target and avoid loss objectives of earnings management,we divided the study sample into four groups,we use non-equilibrium random effects panel data regression from 2004 to 2007, the result is that, institutional investors can inhibit earning management which the company does not exist industry performance target's and avoid loss objectives. In contrast,institutional investors will increase the extent of earnings management. In the no profit-target earnings management's company, only short-term institutional investors can inhibit earnings management; In the presence of profit target earnings management'company,short-term and long-term institutional investors have shown the role of earnings management suppression. This result shows that:Institutional investors could curb earnings management, largely depends on its play game result between the management and institutional investors.We selected the industry-adjusted earning before interest and tax and industry-adjusted the income from principal operations return on equity to evaluation the company's performance, to examine institutional investors in corporate governance is to play an effective watchdog role or to grab the interest. The results showed that: A higher proportion of institutional shareholding or more number of shareholding institutional investors in company, Institutional investors can effective monitor on the management and enhance earnings performance; Lower percentage of institutional investors or a small number of institutions holding companies,institutional investors can collusion management and may damage the interests of other shareholders,have a negative role in the company performance. We further test also found that:whether Institutional investors have a positive or negative impact on the company performance,Only relevant to institutional investors shareholding in the company' is high or low and the number of institutions is more or less.In this dissertation,the innovations are: First,for persecution of information transparency,we test institutional investors'selection ability from static and dynamic model at the same time. For the current study, Institutional investors'selection ability on stock limited T-test between sample of institutional investors holding and non-institutional investors'holdings. In this thesis,from the perspective of information transmission channels,on theoretical analysis, we think that institutional investors have the advantages of interpretation information,at the same time; Empirical research found that the institutional investors, both short-term institutional investors and long-term institutional investor,have the advantage of interpretation information. The advantages of interpretation information not only existed institutional investors'selection behavior,but also existed institutional investors will make a positive or negative reflection according to the changes information transparency.Second,we view the relationship between institutional investors holding and earnings management from the management motivation point. We found that whether institutional investors could curb earnings management depends on the "strength"between management and institutional and management. Make a distinction from previous studies; earning management only confined to Jones model or its simple amendments,in this thesis,we divided the sample into four sub-samples according to the two situations that may bring earning management. The study found that institutional investors can inhibit the management of earnings management,no matter what type of institutions investors,if there is no motivation to industry performance target for the company In contrast, institutional investors will increase the extent of earnings management.Finally,based on the framework of costs and benefits analysis,empirical research found that institutional investors demonstrate supervisor role and grabber role at the same time in China. When shown what role in the company depends on the level of ownership and the number of institutional investors. In the previous study,the role of institutional investors in the company's performance had been both positive and negative voices,in this thesis,the conclusion is clear. That is to say,only institutional investors in the company have sufficient right to speak,their have the incentive and ability to demonstrate supervisors'role.