Institutional Investors’ Corporate Governance Function In China

The paper analyzed the investors’ function of corporate governance byobserving the institutional investors’ impact on restricting the relatedtransactions of listed company. On the basis of reviewing and summarizinginformed theories and empirical research, firstly, the paper summarized thehistory of institutional investors’ participation in corporate governance andanalyzed why and how they took part in corporate governance in detail.Secondly, the paper described the development of institutional investor andcurrent situation of related transactions in China. Finally, the paper selected thecross-sectional data of Shanghai and Shenzhen A-share listed company in2002to2010as sample to conduct empirical research on the association betweeninstitutional investors’ stake and listed company’s cross-sells, cross-purchase,cross-guarantee and cross-fund embezzlement. By using the multiple linearregression model, this part discussed the influence of the stake on relatedtransactions and measured the institutional investors’ corporate governancefunction. Survey results indicate that although China’s institutional investorskeep developing continuously, their restriction on listed company’s relatedtractions were not very strong. However, specifically, the shareholding ratio ofinstitutional investor and cross-sells, cross-purchase, and cross-fundembezzlement occupied a certain degree of negative correlation, while did notrestrict the cross-guarantee obviously. Therefore, this paper suggested that therelative regulation on institutional investor’s participation in listed company’sgovernance should be further formulated in order to strengthen the effect ofinstitutional investors in the equity balance.