Research On Institutional Investors' Intervention In Corporate Governance Of Listed Companies In China

Institutional investors would participate in corporate governance only after they had developed to a certain stage, which started from "Institutional Activism" represented by CALPERS from1980s to1990s. As a kind of mechanism innovation in corporate governance, institutional investor was subsequently drawn lessons by many countries to perfect the original corporate governance system, which include Japanese, Europe continents and many emerging-market countries. In practice, institutional investor's intervention in corporate governance has a large range all over the world, from proxy voting, shareholder proposals, and private negotiations to improving the environment of the capital market, initiating takeover, etc.A conceptual framework of institutional investor's intervention in corporate governance was built after comparing the vicissitude of different corporate governance models. The conceptual model implies that it is a result for institutional investor to decide whether to participate in corporate governance or not by comparing monitoring benefits and costs. According to "rational person" hypothesis, institutional investor must adapt to the institutional environments which it lives in first, and then it will compare the monitoring benefits and costs based on the established institutional constraint. However, the monitoring benefits and costs are determined by institutional investor's influence of shareholding. Institutional investor's influence may come from the entirety, large institutional investor or institutional coalition, so it can be seemed as "synthetic game ability".Capital market and laws are the most important factors in outside environments which affect institutional investor's intervention in corporate governance. As an exchange platform, capital market's developing level will influence institutional investor's function. The more mature capital market is, the better institutional investor will develop and function. In turn, institutional investor's development will promote capital market's function by stock exchange and corporate governance. For example, institutional investor can improve the market's efficiency by "information transmission", mitigating "information asymmetry" between investors and corporations. Chinese capital market has a short history with many imperfect regulations, which has a great deal of negative influence on institutional investor, such as "noisy transaction", manipulation of market, etc. Besides, institutional investor is restricted by laws and regulations very much. For example, laws will limit institutional investor's developing scale, shareholding proportion and transaction activities. Institutional investor's governance function is also influenced by transaction regulation, shareholder protection, etc. The legal system is still imperfect in china, and the government has a lot of work to do in regulation provision.The aim of corporate governance is to resolve "agency problem". Although nontradable shares reform has been finished in China, the equity concentration of listed companies is very high, and controlling shareholders exist commonly. The agency problems are very serious in Chinese listed companies, which include not only controlling shareholder's tunneling, but also "insider controlling" in state-controlled listed companies. As representative of dispersing small and medium investors, institutional investors can change the equity structure of listed companies with enlargement of their shareholdings, which means that institutional investors own "balancing" ability to controlling shareholders only if they have enough shareholdings. To resolve the agency problem of "insider controlling", institutional investors can replace the state to monitor the "insiders" when they get more and more shareholdings, which will be possible in the process of SOEs reform and institutional investor's development.The main research results are shown below after the empirical analysis:First, institutional investor's investing weight has a significant negative impact on executive pay and positive impact on sensitivity of pay to performance. Shareholding concentration and difference have a significant impact on both executive pay and the sensitivity. Institutional investor entirety has a significant positive impact on both executive pay and the sensitivity. In the light of monitoring effect, investing weight is greater than shareholding concentration and difference, shareholding concentration and difference are greater than the entirety. This kind of sequence reflects the size of institutional investor's benefit which determines the monitoring impetus and capability.Second, the shareholding concentration of investment fund has a significant negative impact on executive pay; shareholding difference has a positive impact both on executive pay and sensitivity of pay to performance. Shareholding concentration of social security fund has a negative impact on executive pay. Shareholding and concentration of QFII have a significant positive impact on the sensitivity, but its shareholding has a positive impact on executive pay. Shareholding concentration of trust company has a positive impact on executive pay. Shareholding proportion of securities company has a negative impact on the sensitivity. Shareholding concentration of insurance company has a negative impact on executive pay.Third, institutional investor entirety has a significant negative impact on related-party transaction (RPT). Shareholding concentration and difference have a significant positive impact on RPT. These conclusions indicate that minority large institutional investors can't balance the controlling shareholders effectively because of their weaker stock-share power. When their benefits are tunneled by the controlling shareholders, institutional investors will resist as an entirety.Fourth, institutional investor entirety has a more significant negative impact on non state-controlled companies than state-controlled companies. This indicates that state-controlled companies restrain institutional investor's governance function because of more serious agency problem than non state-controlled companies.Fifth, ROE has a significant impact on institutional investor's investment portfolio, but R&D expense hasn't. R & D expense doesn't improve institutional investor's shareholding. These indicate that institutional investors only play a role of "trade" based on short performance in our country, which may be caused by immature capital market and regulation environments.The innovation of this research include there points which are listed below:First, make a detailed analysis on the influence factor of institutional investor's intervention in corporate governance, taking shareholding concentration, shareholding difference, investing weight and institutional investor type into account except outside environment, institutional investor entirety. These influence factors reflect institutional investor's game ability with different stakeholders, such as other institutional investors, small investors, corporate insiders and the government, so we name it "synthetic game ability".Second, make a theoretical analysis on institutional investor's governance function in accordance with the agency problems in the listed companies of our country, which can be generalized as "balancing" the controlling shareholders and "replacing" the state-controlling shareholders to monitor "insiders". The analysis remedies the research deficiency on the second agency problem, namely controlling shareholder's tunneling at the expense of smaller shareholders.Third, perfect the empirical analysis models by adding to new explanatory variables (such as shareholding concentration, shareholding difference, etc) and by classifying the institutional investors according to their function, which overcomes the shortcoming of homogenizing all the institutional investors in past research. Besides, the research makes an empirical analysis on institutional investor's function of "value finding" and "value creation" by introducing a new independent variable, R&D expense, which overcomes endogeneity between institutional shareholding and short performance.