Institutional Investors And Corporate Governance

Since 2000,institutional investors have been developping rapidly in China.Regulators hope that through the intervention of institutional investors,the development of listed companies can be promoted by market forces.Institutional investors have gradually become an important participant in A-share stock market.Then,what role do institutional investors play in corporate governance?First of all,using data of 2006-2014 non-financial listed companies,we studied the relationship between institutional investors and corporate value.By controlling the endogeneity,results show that institutional investors can significantly positively affect the company performance,namely,institutional investors help enhance the value of the company.Secondly,from the perspective of mergers and acquisitions,we study if institutional investors monitor in corporate governance.The empirical results show that Institutional investors positively affect the possibility of bad deals and there is no significant correlation between institutional investors and corporates' merger performance,namely,the institutional investors do not play active role in M&As.Many reasons can explain this phenomenon,including macro level,micro level and institutional investors themselves.Matvos and Ostrovsky(2008)believes that the reason why institutional investors do not monitor in M&As is cross-holdings.Institutional investors tend to hold shares in both buyer and seller.In bad deals,the gains they can obtain from seller more than offset the losses in buyer.Hence,they have no incentives to monitor.Thirdly,this paper examines if this theory can hold in China.In fact,statiscally,on average,the gains from seller can not compensate the losses in buyer in bad deals.Empirical results also show that whether institutional investors cross-hold or the excent they cross-hold have no significant effect on bidder performance.Hence,the theory of cross-holding can not explain why institutional investors choose not to monitor in M&As.Further analysis show that macro-level reasons may best explain the phenomenon above.Specific contents are as follows:The first chapter is an introduction,which briefly introduces the research background,the theoretical and practical significance of the topic,the framework and content of the research,and the innovation of the paper.The second chapter is literature review.We reviewed existing literature from two aspects,one of which is institutional investors and corporate governance,including three parts:the main fields,the way and the effect.The other aspect is M&As,including motivations and performance.The third chapter is the analysis of the mechanism of institutional investors' participation in corporate governance.First,it puts forward the theoretical basis of institutional investors participating in corporate governance,and then constructs the game model,and finally analyzes the participation mechanism.The fourth chapter analyzes the institutional background of institutional investors' participation in corporate governance,including the current situation and problems of corporate governance in China,the development of institutional investors and the constraints.In the fifth chapter,we use empirical models to study the relationship between institutional investors and the value of the company.The results show that institutional investors can help improve corporates' value.The sixth chapter analyzes the relationship between institutional investors and listed companies M & A decisions and performance.Using 2006-2015 listed companies which initiated mergers and acquisitions,we test the impact of institutional investors on the listed company merger decisions and performance.The results show that institutional investors did not play a supervisory role in M&As.The seventh chapter analyzes the reasons why institutional investors choose not to monitor in M&As.We empirically test whether cross-holding theory can explain the reasons why institutional investors do not actively supervise in mergers and acquisitions.The results show that the gains from cross-holding in seller do not compensate the losses in the buyer.Whether cross-hold or the extent to which they cross-hold has no significant effect on bidder performance,namely cross-holding cannot explain the role institutional investors play in M&As.Further analysis shows that the most likely cause of these phenomena lies in the imperfection of macro system.The eighth chapter is a summary of the research results,including the conclusions and policy recommendations.The innovation of this paper lies in:First,we study if institutional investors participate in corporate governance from the perspective of mergers and acquisitions to provide new evidence.At present,researchers study this issue from earnings management,information disclosure,refinancing decision,CEO turnover.However,as a major event,M&As is merely focused.This paper attempts to make an empirical study through mergers and acquisitions to further complete the theories of institutional investors participating in corporate governance.Second,this paper deals with the innovation of endogenous treatment methods.In previous studies,most of the scholars used the lag data to control the endogeneity problem,and two different methods were used in this paper.First,when we study the relationship between institutioanl investors and corporate value,we use simultaneous equations to control endogeneity;second,in the study of institutional investors in the mergers and acquisitions,we use annual turnover as instrumental variable to deal with the endogeneity problem.Third,we also study the reason why institutional investors choose to play such a role in M&As.We empirically test whether cross-holding theory can explain the reasons why institutional investors do not actively supervise in mergers and acquisitions.The results show that cross-holding cannot explain the role institutional investors play in M&As.Further analysis shows that the most likely cause of these phenomena lies in the imperfection of macro system.