Research On Institutional Investors Participating In Corporate Governance In China

As early as the1970s, the US-led management theorists and economists began toresearch on institutional investors participating in corporate governance, andaccumulated a large amount of literature in theoretical and empirical. By usingmanagement and economics theory, these studies expanded in the context ofmanagement and economics, focusing on motivation and behavior of institutionalinvestors involving in corporate governance. In recent years, as the key determinantsof organizational behavior, the legal regulation factors gradually lead to thetheoretical and academic interest. In the development process of U.S. institutionalinvestors, it reflects that the institutional arrangements provide specific legalregulation channels. Recent research scattered in a few books and articles, mostly is aforward-looking analysis or select one aspect, but not under the system framework. Inview of this, this paper try to comb and elaborate of a more systematic internalmechanism and the interaction between institutional investors and corporategovernance.The rise of institutional investors, provide new opportunities to the developmentof corporate governance mechanisms. Either for the values or the system design,corporate governance structure is bound to a revolutionary change. On the structure,the paper is divided into four parts. First of all, the first part define the definition ofinstitutional investors and major categories, as well as the concept of corporategovernance, in order to frame the basic category that the paper explore.The second part introduces the basic theories of the Company Law and severalmajor problems of corporate governance theory. Also there presents the motivationtheory and behavior theory of Western scholars for institutional investorsparticipating in corporate governance. Scholars believe that different types ofinstitutional investors have different motives in corporate governance, the factors including whether there is a conflict of interest, the length of time and stake theinstitutional investors holding. When institutional investors are dissatisfied with themanager of governance or corporate performance, there are generally two types ofbehavior choices, one is "negative shareholders"-silence and give up ("vote by feet");another is "shareholder activism"("vote by hand "). Subsequently, with the two partsof the basic theory of corporate governance and institutional investors as the logicalstarting point, this part discuss three theoretical problems of corporate governance-"agency costs" issue, the paradox of the theory of ownership structure, and the debatebetween shareholder supremacy theory and stakeholder theory. The introduction ofpowerful institutional investors have a strong institutional advantages and theoreticalsignificance. It will reduce agency costs between outside shareholders and managers,protect the interests of small shareholders by checking and balancing the largestshareholder in the shareholding structure, also will protect the interests of otherstakeholders. As Institutional investors to join, not only play a huge force in thepattern changes of corporate governance, but also explore many theoretically topicabout corporate structures.Through the analysis of the theoretical contribution of institutional investors, itbring out many problems of China's institutional investors. How to improve the roleof China's institutional investors, so that the potential theoretical value to behighlighted.We need further in-depth analysis of China's institutional investors incorporate governance status quo.The third part of this paper, first of all to analyze the status and trends ofinternational institutional investors participating in corporate governance. Making theUnited States, Germany, Japan as examples, this paper introduces the channels of theU.S. institutional investors participating in corporate governance, as well as the riseof shareholder activism of the Germany and Japan institutional investors. Followed,China's institutional investors' development history, status and inadequacies in theprocess of participating in corporate governance are described and analyzed. Due tothe China's capital market environment and the lack of relevant policies andregulations, China's institutional investors were in a more vulnerable position whenparticipating in the corporate governance. They paid more attention to the protection of their own interests, therefore the phenomenon of negative shareholders',"free-rider"mentality, or even market speculation and illegal manipulation were very common.Finally, based on the above, the introduction of theory of institutional investorsparticipating in corporate governance, the conclusions international comparative lawanalysis, and the introduction of the situation of our country, in the fourth part thererise the solutions of institutional investors' shareholder activism. This section providethe insights of the theory of organizational forms of the institutional investors and theestablishment of institutional investors' fiduciary duties as the trustee. Contract Fundand the Commercial Trust, venture capital and limited partnership are two advantageorganizational forms combination. To explore the growth potential of institutionalinvestors in China's capital market, this part select a perspective of the developmentof the OTC market and QFII system. In very the end, this paper provide someProposal to improve the voting system, informal channels of participation for theChina's institutional investors' shareholder activism.