How Do Institutional Investors Affect Corporate Governance Of Their Companies:Evidence From Chinese Companies On The Shanghai Stock Exchange And The New York Stock Exchange

The proportion of institutional investors in the stock market can be seen as an important standard to representing its maturity.In general,the more mature the market is,the higher the proportion of institutional shareholdings it owns.For example,as the representative of mature overseas markets,institutional investors in the United States occupied more than 50%shareholdings in the market.There is a different story in China where individual shareholdings account for more than 50%of the total shareholdings.However,China has experienced a decreasing trend of individual shareholdings due to tax-evasion mechanisms and more professional wealth management institutions in the recent years.That is to say,institutional investors' roles in the market have become increasingly important.On a corporate level,institutional investors have also become an important force in corporate governance.They have the right to speak on corporate decisions by their voting rights in the shareholders' meeting.The participation of institutional investors in corporate governance will ultimately be reflected in the performance of the company.The principal-agent problem caused by the separation of the two powers is one of the most important problems in corporate governance.In order to improve the efficiency of corporate governance,the company needs to formulate a corresponding system to reduce the cost of principal-agent and to protect the rights of owner.The involvement of institutional investors may have a positive or negative impact on this process.This paper intends to analyze the impact of institutional investors on corporate governance and corporate performance through empirical tests on the Shanghai Stock Exchange and the New York Stock Exchange,thereby offering advice on capital markets,to companies,and to investors.The thesis is divided into five chapters:The first chapter is the introduction,which introduces the research background,research purpose and research ideas of this thesis.The second chapter is literature review.First,it gives definitions of key concepts based on previous research,such as institutional investors,corporate governance,and corporate performance in the thesis.It then describes the possible roles of institutional investors in corporate governance.Afterwards,it discusses the influence of corporate governance on corporate performance from three aspects:the board of directors,management incentive,and ownership structure.Moreover,this chapter also reviews how previous research designed models for the empirical tests.The third chapter is methodology.It establishes hypothesis based on literature review and builds the model and chooses data samples in the Chinese and the US markets.Corporate governance is quantified by the percentage of independent directors,managerial pay,and the ownership concentration.The thesis is going to conduct two stages of regression.In the first stage,the percentage of institutional shareholdings is the independent variable while the percentage of independent directors and the managerial pay(corporate governance)are the dependent variables.In the second stage of regression,the percentage of independent directors,the managerial pay and the institutional shareholdings' balance over the other big shareholdings(corporate governance)are the independent variables while ROE(corporate performance)is the dependent variable.The fourth chapter is the empirical studies.It gives descriptive statistics of all variables in both markets,the results,and the analysis of the regressions.In the Chinese market,there is a significant positive correlation between the institutional shareholdings and the percentage of independent directors and managerial pay.The percentage of independent directors,managerial remuneration,and institutional investors' checks and balances over large shareholders are also positively correlated with corporate performance.The US market also has similar results.In the study of the impact of different types of institutional investors on the performance of the company's shareholding,the institutional shareholdings have a significant positive correlation with corporate performance only in the fund companies.The fifth chapter is the conclusion and the policy recommendations.It discusses the reasons of the results in Chapter 4,while also giving policy ·recommendations to the Chinese capital market and suggestions to institutional investors and companies based on the conclusions.