An Empirical Study On The Value Enhancement Influence Of Institutional Investors

Since the 1980s, shareholder activism rose in Western developed countries. Institutional investors changed their passive investment strategy and started to enhance the market value of listed companies actively. There are many similarities between the current situation of China’s capital market and the situation in developed countries at that time. In this article I want to explore that whether there are activist shareholders in the capital market of China today, and what kind of impact they make on the stock returns.Although existing research has revealed the mechanism for activist shareholders to improve the corporate governance, it is not well combined with asset pricing models. In this paper, I want to restore the process of asset price formation and construct an asset pricing model in a new way based on the essential characteristics of different types of financial markets traders. This article divides traders into three kinds, that is, the fundamental traders, the sentimental traders and the price influencers. Particularly, price influencers can be subdivided into price manipulation type and value enhancement type. Reasonableness of this classification method is made clear by theoretical analysis, and the way how three kinds of traders can influence asset prices is characterize too.I select ROE to represent fundamental traders’factors, turnover rate to represent sentiment traders’factor, and lag change in shareholding proportion of institutional investors to represent value enhancers’factor. The empirical model also includes some other control variables according to existing research. This paper examines what impact three types of traders, especially the value enhancers, have on the yield of CSI 300 Index constituent stocks.Through dividing listed companies into several groups, we find that the potential value enhancement funds play a significant role in enhancing the value of large-scale companies and the ones whose stock price couldn’t reflect firm performance well, while not significant for other companies. This paper analyzes an example to express this phenomenon. On the basis of the results of empirical research, some policy recommendations are given for the development of value enhancers.