Research On Institutional Investor And Value Relevance Of Accounting Information

The ownership structure is the foundation of property right and the most crucial part of corporate governance structure. According to the theory of power balance with shareholder structure, institution investor has an important impact on corporate governance. A large stake in listed company will motivate institutional investors to monitor the management and board of directors of the company and improve information disclosure. As a result, institutional ownership impacts the value relevance of earnings.In recent years, China has greatly improved its investment environment for various forms of institutional investors and diversified their sources of investment. Institutional investors, including investment funds, stock brokerages, insurance companies, pension funds and government sanctioned foreign institutional investors (QFII), have become the top movers and shakers in China's securities markets. The increase of institutional ownership provides new opportunities for research on institutional investor and the quality of accounting information.This paper clarifies the function of institutional investors in corporate governance through the influence of institutional ownership on value relevance of accounting information. Studies of Shanghai-listed and Shenzhen-listed A-shares data 2005-2007 find that relationship is clear between institutional ownership and value relevance of earnings. Results show that institutional ownership is positively associated with earnings'explanatory power for prices. Moreover, with the mounting institutional holding, their explanatory power rises, an indication that institutional investors are beginning to play a role in corporate governance in recent years.Finally, the article also discusses why and how to promote institutional investors in corporate governance.