Heterogeneity Spreads:The Relationship Between Shareholdings Of Institutional Investors And Corporate Performance

In recent years, due to the active investment behaviors of thriving institutional investors in the capital market, the effects of institutional investors on corporate governance and corporate performance have attracted the attention of lots of scholars. Especially, the distinctive investment strategies and preferences of different types of institutional investors, due to their differences in investment scale, sources of Funding, investment philosophy, business contacts, and other aspects of the external restrictions, have become the entry points to scholars on the relationship between institutional investors'shareholdings and corporate performance.In this paper, based on the data on China A-share listed companies from year 2004 to year 2014, we employ Fama-MacBeth regressions to explore how the four major institutional investors in China:Funds, Brokerage, QFII, Brokerage financial products affect the performance of listed companies heterogeneously with different time spans, shareholding sizes or issuance markets.The regression results show that:firstly, no matter in the long or short run, the shareholding of Fund who act as long-term investors shows a significant positive correlation with corporate performance. However, Brokerage financial products only prefer to invest corporations with good performance in the stock market, leading to "false positive correlation" phenomena. Income-oriented institutions-Brokerage and independent institutional investors (QFII) both demonstrate insignificant effect on corporate performance. Secondly, the accumulation of stakes allows all types of institutional investors transit their roles from passive to active supervision and produce positive impact on corporate performance. When the stake is low, the impact depends largely on the nature of investment. With the stake increasing, the effect is stronger. For Fund, QFII and other long-term value-based institutional investors, their positive impacts on performance become larger. For Brokerage, Brokerage financial products and other short-term speculative institutional investors, their negative effects on the corporate performance become weaker. Thirdly, compared to the SME (Small and medium enterprises), GEM (Growth Enterprise Market) listed companies, the impact of stockholdings of institutional investors is more significant to the performance of mature main-broad listed companies.We do robust tests through two methods:replacing variables and replacing the mode in this paper. Besides, we discuss the endogenous problem with simultaneous equations and the 3SLS model. Eventually, my empirical results indicate that different kinds of institutional investors and the size of their stockholdings have heterogeneous impacts on corporate performance. Therefore, the government should take these into account when it encourages the various institutional investors to play the more active role in corporate governance.