The Relationship Between Institutional Ownership And Corporate Performance

On one hand, institutional investors are more and more mature in their investing ideas. In order to achieve long-term pay-off, they are beginning to play active parts in the cooperate management of the invested companies. On the other hand, ability of research and development provides the company a competitive tool to survive and develop. However, due to the long development cycle and high risk of the R&D activity, managers tend to ignore it. When both institutional investors and R&D activity are trying to enhance the company’s operating performance, we could make a deduction that institutional investors could enhance the company’s operating achievement through monitoring the management of R&D activity.Based on the principal-agent theory, stakeholder theory and cost-benefit theory, this article analyzes the mediating effects of R&D costs on institutional shareholding and corporate performance. And also discuss the different role that pressure-resistant and pressure-sensitive institutional investors play in the cooperate management.We find that institutional investors could not only promote the input of R&D, but also could drive the growth of corporate performance. Through further classification, we confirm that the above effect is mainly achieved by pressure-resisted institutional investors. The reason is these investors are more able to follow the objective and independent will to monitor. In addition, R&D investment plays a partial mediating role in the relationship between institutional ownership and corporate performance.Through this study, we hold the idea that firms that are driven by high technique should enhance the core-competitiveness. One possible way is to introduce pressure-resisted investors. On one hand, they can provide a great sum of money to meet the need of R&D activity. On the other hand, they can also play a positive part in corporate governance.