Research On The Impact Of Institutional Investors On Corporate Governance

The impact of institutional investors on corporate governance andrelated economic results have been the focus of scholars for years. Butmost of the research saw institutional investors as individual entities, andempirical studies were done by merely examining the relationship betweenthe attributive character, institutional ownership proportion and corporategovernance variables, without considering the relationship character thatexisted among the social network of companies and their institutionalinvestors. In this paper, we introduced the social network theory into thetraditional corporate governance model, and established a morecomprehensive model to analyze the institutional investors’ impact oncorporate governance.Based on the data from2010to2012of Small and Medium EnterpriseBoard listed companies, the empirical part is divided into two aspects.Firstly, we analyzed the influence of institutional investors on topexecutives’compensation to examine their governance character. Secondly,we analyzed the influence of institutional investors on firm performance tosee the economic consequences.The empirical study of top executives’ compensation showed that theownership proportion of institutional investors had no significant impacton monetary compensation level. The degree centrality, which measureswhere a listed company is located on the interlocking enterprise networkcombined by institutional investors, positively affected the top executives’monetary compensation. The results were consitstent after considering thelog effects of institutional investor shareholding.The empirical study of firm performance showed that the ownershipproportion of institutional investors positively and significantly affected the performance of China’s listed companies, which is measured by returnon asset. The degree centrality also had a positive and significant influenceon firm performance, and its introduction improved the goodness of fit ofthe regression model. Considering the log effects of institutionalshareholding, we used the log independent variables to do the regressionanalysis again, and came to the same results. All the conclusions above aresteady. The social network among listed companies combined byinterlocking institutional investors did have an influence on corporategovernance and firm performance.