Could Institutional Investors Improve The Quality Of Financial Information?

Benefiting from the Chinese SEC’s policy of "super-sized development of institutional investors", institutional investors are keeping growing since2005.With their expansion in size, the institutional investors have developed as the main forces in Chinese capital market. Therefore the governance function of institutional investors has been widely focused by researchers inside and outside. Chinese GEM helped build multi-level capital market, provided a broad platform to financing for the innovative, high-tech or rising SMEs at their rising stage.However most of these GEM-listed companies originated from private-owned family business, and naturally inherited their born governance defects.Institutional ownerships have changed the shareholding structure of GEM-listed companies, whether they can improve corporate governance worth researching and the effect remains to be seen.Capital market operates based on financial information, therefore the quality of financial information have significant influence on the effectiveness of capital market. Institutional investors show strong abilities in collecting, processing and analyzing data, which enables them excavate more details than personal investors. Meanwhile institutional investors work as the bridge connecting capital owners and capital market. On one side, they collect funds from capital owners, work as the agent for them, on the other side, they deliver the analyzed information to capital owners; therefore improve the transparency of financial information. Different types of institutional investors show different governance abilities. Security funds could improve the transparency of financial information robustly, while social security funds don’t work that much. Meanwhile, institutional investors couldn’t improve the reliability of financial information. Based on the speculative background of GEM, security funds shareholdings increase the earning management, reduced the reliability of financial information. Social security funds show no robust effectiveness in improving reliability of financial information.In conclusion, Chinese SEC should improve the development of institutional investors while guide them to participant in corporate governance without their disadvantages.