Study On The Effectiveness Of Institutional Investors Monitoring The Company's Managers

At present, the most studies on effect of institutional investors, intervening in corporate governance of listed companies have much controversy at home and abroad. Especially, the development of institutional investors in our country is late, the studies on this area are learning from foreign's experience, and the theoretical analysis is more. Empirical researches on corporate governance of institutional investors are not many. Therefore, this question in our country has to be discussed more comprehensive and more in-depth. With the reform of non-tradable shares and the adjustment of the national policy environment, institutional investors' market shares have a substantial change, the status and role of institutional investors are also increasingly important. Therefore, a comprehensive study of the impaction of institutional investors on corporate governance would improve corporate governance in China. This paper focuses on the institutional investors in monitoring the effectiveness of the company's managers.Corporate governance research indicates that large owners provide effective monitoring. In this article, we expand firm-level notions of monitoring to include large institutional owners' investment portfolios and suggest that portfolio characteristics affect owners' motivation and capacity to monitor, which compromises the positive effects of monitoring at the firm level. For example, if the largest institutional owner's portfolio consists of many large holdings and/or block holdings, these holdings may demand the monitoring attention of owners and detract from monitoring effectiveness at the firm level. Alternatively, if institutional owners have higher preferences for portfolio liquidity (i.e., portfolio turnover), their monitoring effectiveness should decrease because they face declining incentives to monitor because of their propensity to use exit. Finally, if large institutional owners pay more attention to their larger holdings, they may compromise their monitoring of smaller holdings. Hence, our research question is as follows:How do large institutional owners' firm-level ownership and their portfolio characteristics influence monitoring effectiveness?Specifically, using data from 322 firms over a 5-year period, we find that increases in the size of portfolio holdings, portfolio turnover reduce monitoring effectiveness in the context of executive compensation.Although some results are not very significant, but we can see that the characteristics of institutional investors has indeed affected the monitoring of the company. And the importance of a particular holding increased monitoring effectiveness. This compared to study of the firm-level, further evidence that in China have been involved in corporate governance, at least relative to the important company in their portfolio, the institutional investors played a key supervisory role. However, the research paper from the portfolio level is adequate, especially for the variables can be expressed on portfolio characteristic also need to be improved in future research. Therefore, we recommend that future studies should consider both firm- and portfolio-level effects simultaneously to understand monitoring effectiveness. Finally, the article provides some reasonable suggests on the institutional investors monitoring the company.