Institutional Investors And Corporate Governance

Before 1980's, institutional investors had focused on the stock price of target companies, but not their corporate governance. When they were not satisfied in the performance of firms, they would sell the stocks. After 1980's,the situation began to change. The institutional investors of developed countries became the active role in corporate governance. In 1990's, the change became more significant. Under the pressure of institutional investors, six famous CEOs were fired successively in 1992. They were IBM CEO John Akers, GM CEO Robert Stempel, American Express CEO James Robinson, Westinghouse CEO Paul Lego and Compaq Computer CEO Rod Canion. The arguments about the impact of institutional shareholder activism are going on. Some authors(such as Michael Smith, 1996)suggest activist efforts as helping to ameliorate the incentive and control problems that characterize large, diffusely held corporations. Some claim that shareholder activism increases firm value by prompting specific actions. But some suggest that shareholder activism has negligible effects on target companies'operation and value. Wahal(1996) argues that activism is an ineffective alternative to more costly and aggressive efforts to influence firm decisions. Murphy(1994)and Woods(1996) hold the similar opinions. Although the concerning arguments are continuing , institutional shareholder activism rising has already become a fact. Why do institutional investors turn into activist from pessimist? What do the change have impact on corporate governance? And what about the effect of institutional shareholders activism? This paper's aim is to research and answer these questions. In this paper we research the rising of institutional shareholder activism, its impact on target companies'performance and value, and we put forward some suggests about encouraging the development of China'institutional investors and how to improve China'corporate governance. The paper is organized as follows. Section 1 "introduction". In section 1, we introduce that the paper's aim, organize and so on. Section 2 "institutional shareholders activism rising and evolving". Firstly we define the term "shareholder activism", and introduce shareholder activism early. Secondly the evolution of institutional shareholders activism in USA is introduced. Thirdly we survey institutional shareholders activism of USA spreads in the world scope. This paper believes that the definition of a shareholder activist is an investor who tries to change the status quo through 'voice', without a change in control of the firm. Section 3 "the cause of institutional shareholders activism rising". In this section, firstly we analyze the cause of institutional shareholders activism rising from the follows :developed countries'financial market evolving, institutional environment changing and financial theory developing. Then we investigate the investment institutionalization's impact on the behavior of institutional investor. We suggest that the development of institutional investors, and their growing dominance as owners of corporations has had a pervasive influence on corporate governance. Section 4 "pattern corporate governances'comparison and governance fail's institute cause". In this section, we first discuss the corporate governance's theory basis, and define corporate governance. Then we compare some counties'corporate governances. Last we discuss governance fail's institute cause. Section 5 "institutional investors impact on corporate governance". In section 5 we discuss mainly institutional investors'impact on corporate governance. We suggest that institutional shareholders activism has positive effects on corporate governance. Institutional shareholders activism may alleviate the problem of corporate power'unequilibrium, increase the expect cost of opportunist behavior and improve the level of decision. Although the effects of institutional shareholders activism have limited , we believe totality institutional shareholders activism can improve target companies'performance and corporate governance. Section 6 "corporate governance and institutional investors in china". In this section we first discuss Chinese corporate governance's situation and problems. Then we examine the situation...