Institutional Investors Heterogeneity,Equity Balance And Corporate Performance

The rapid development of institutional investors at home and abroad has made it an important force in the stock market. In Western countries, institutional investors have become major players in the market; In China, institutional investors started late, but developed rapidly. Benefiting from the strategy to aggressively develop institutional investors put forward by the CSRC, institutional investors in China obtained a favorable external environment; the overall size expanded rapidly and showed a diversified development pattern with funds, QFII, security companies, insurance companies and national social security fund (NSSF) booming. Non-tradable Share Reform started from2005provides a good opportunity for institutional investors in China which get a further development.With the increasing influence of institutional investors, scholars at home and abroad both paid much attention to institutional investors. Compared to individual investors, institutional investors are generally supposed to be able to find good list companies and be value discoverer due to advantages of capital, information and equity status. They are also expected to value creator by supervising managers and improving corporate performance.However, scholars at home and abroad haven’t reached an agreement on institutional investors’value discovery and value creation. Some believe that institutional investors prefer companies with good corporate governance and performance for short-term benefits. That is to say, companies held by institutional investors perform well is because they are good companies themselves, not because institutional investors improve the performance by involving in corporate governance. They are just value discoverer, not value creators yet. While some scholars argue that institutional investors will involve in corporate governance and improve corporate performance by limit managers and controlling shareholder to protect their interests. In addition, domestic and foreign scholars generally tend to consider institutional investors as an entirety, which conceals institutional investors’ heterogeneity and can’t distinguish the relationship between different institutional investors and corporate performance. Furthermore, there’s few research on the relationship between institutional investors equity balance. This paper will find whether institutional investors in China are value discoverer or value creators or both and distinguish the effect of different institutional investors, hoping to enrich research on the relation between institutional investors and corporate performance and provide empirical evidence for policies making.This paper is divided into6chapters in total as following:Chapter Ⅰ, introduction. This chapter mainly states this paper’s background and significance, and then puts forward this paper’s thinking and framework. At last this chapter points out the contribution and shortage of this paper.Chapter Ⅱ, literature review. This chapter reviews the related literature, including institutional investors’ stock holding preferences and the influence of institutional investors share holding and equity balance on corporate performance. At last is the comment on the literature.Chapter Ⅲ, related theoretical analysis. This chapter mainly analyses the influence of institutional investors on corporate performance theoretically. It expounds separation of ownership theory, principal-agent theory and stakeholder theory, laying theoretical foundation of this paper.Chapter Ⅳ, institutional investors’ development history and heterogeneity. This chapter is about institutional investors’ development history in China and institutional constraints of each type of institutional investors. According to the pressure sensitivity affected by business relationship, Institutional investors are divided into "pressure-sensitive" and "pressure-resistant" to reflect heterogeneity.Chapter Ⅴ, empirical test. This chapter put forward corresponding hypothesis about the relationship between institutional investors and corporate performance and distinguish the heterogeneity of institutional investors, then this paper tests the hypothesis.Chapter Ⅵ, conclusions and policy proposals. According to the study, this chapter draws the main conclusions of this paper, and puts forward policy proposals according to the conclusions.This paper’s sample includes list companies in Shanghai and Shenzhen Stock Exchanges from2007-2011. This paper examines the relationship between institutional investors and corporate performance by simultaneous equations and two-stage least squares to control endogenous variables, and then further examines that of different institutional investors and institutional investors’ equity balance by robustness test. This paper draws the following conclusions:First, institutional investors generally tend to choose listed companies with good performance and are value discoverer. Meanwhile, institutional investors have a positive effect on improving corporate performance and are also value creator.Second, Fund and Social Security Fund also tend to select companies with good corporate performance and are value discoverer. Fund and Social Security Fund can have a positive effect on improving corporate performance and are also value creator.Third, security companies, QFII and insurance companies don’t show the function of value discovery, are not value discoverer. They are either value creator, failing to have a positive effect on improving corporate performance.Fourth, institutional investors’equity balance showed a significant positive correlation with company performance. Institutional investors generally are able to involve in corporate governance by limiting controlling shareholder and can improve corporate performance.This paper has contributions as following. First, different from the majority of previous studies, this paper examines the relationship between institutional investors and corporate performance by simultaneous equations and two-stage least squares to control endogenous effect, enriching the research on institutional investors. Second, this paper reveals the effect of institutional investors’equity balance on corporate performance, thus it has important practical significance to improving equity structure of listed companies in China. Third, the study on the relationship between different institutional investors and corporate performance can provide theoretical basis for regulators which should make reasonable policies for different institutional investors in order to guarantee the success of the strategy to aggressively develop institutional investors.