Institutional Investors, Research, And Management Of Short-sighted Behavior

The positive correlation between institutional investors and the performance of corporate has been an important subject to many of the hot topics. Traditionally, it has been interpreted for the institutional investors' ability in finding out the best company to invest. Nowadays, increasingly more scholars attempt to interpret it from another perspective, that is, institutional shareholder activism. It is believed that institutional investors who have the capacity to monitor the companies are also willing to engage in corporate governance, thereby improving the performance of companies. However, few evidence can support such hypothesis and the mechanism is ambiguous as well.This paper sheds light on the phenomenon that the institutional investors voting with their feet and its underlying effect on corporate governance. Traditional views usually obscure the institutional investors' option to exit as much violent impact to the market, considering their huge position in one stock. Nevertheless, utilizing a framework where institutional investors, ordinary investors and the management abroad interact with one another, this paper doubts the traditional view and proves three arguments. First, what institutional investors amplify is the threats of voting with their feet rather than the real effect; second, the existence of institutional investors reduces the impact of voting with their feet; third, since institutional investors have weakened the short-term impact of voting with their feet, to some extent they alleviate the managerial myopia, promoting companies'long-term investment.Finally, this paper analyzes the relationship between corporate long-term investment and institutional investors in China. Empirical results show that the significantly positive relationship between them does exist.