Research On The Institutional Investors And Corporate Governance Of Listed Companies

The rise of the institutional shareholder activism has been a significant feature on corporate governance reform in western countries. On behalf of small shareholders, institutional investors can help to solve some ubiquitous corporate governance problems such as agent problem and large shareholders trespassing the interest of small ones, which are caused by information asymmetry and incomplete contract. Institutional investors participate in corporate governance after contrasting cost and income, and it is also a result of interest parties gaming and system adaptation. By comparing corporate governance systems in USA and Japan, it testifies that the governance system dominated by institutional investor achieves optimum concentration in shareholding.Through multiple linear regression on the ratio of institutional shareholdings and performance of listed companies in China, it shows that they have significance positive correlation. We also proves that the active role of institutional investors caused the upwards of company performance by simultaneous equation models. We can also get that the institutional investors can help to set optimal executive compensation through multiple linear regression on the ratio of institutional shareholdings and executive compensation, but they have no significance correlation in long term compensation using Tobit model. All in all, institutional investors have positive effects on corporate governance, but the way and the degree of function is still limited.Shareholder structure of listed companies in China is unreasonable and this causes a series of inside governance problems, which is the most important factor that hinders the progress of listed companies in China. What's more, there is absence of external supervision, so a reform on governance system is necessary. Thus, developing institutional investors as well as reinforcing internal and external supervision, constructing institutional investor dominated governance system contributes to achieve optimal shareholding structure of listed companies in China and helps them to develop continuously, healthily and steadily.