| Investment activity is an important economic activity, eventually; it will affect thevalue of the business to maximize. Capital market imperfections, the presence ofinformational asymmetry and agency problems give rise to the insufficient investmentof company not reaching the optimal state with insufficient invest or investmentexcesses. On one hand, because of financing order universal particularity in our country,the existence of informational asymmetry results in external financing constraints. Thecompany may be unable to obtain sufficient external funds to invest better project, andthen investment expenditures will be greater reliance on internal cash flow (it is definedas investment-cash flow sensitivity in this paper), on the other hand, because of thepresence of agency problems，management of liberalism led management to manipulatethe more internal free cash flow, so they will continue to expand the scale of investmentto the most for their own value,which results in over-investment. The over-investmenteventually leads to the investment expenditures reliance on internal cash flow.Therefore, how to mitigate informational asymmetry and agency problems has been aconcern from a corporate governance perspective, the emergence of institutionalinvestors further expands the ways of improving corporate governance, and they havegradually become an important part of the company’s external governance mechanisms.In recent years, with the expansion of the overall size and the diversification ofinstitutional investors, the role of institutional investors in corporate governance is alsoincreasingly prominent.In the existing domestic and foreign literature, the studies of institutional investors’governance effect are mainly focused on aspects of the quality of information disclosure,earnings management, and management compensation, company performance, and fewresearch literatures involving an investment perspective. Most of domestic literaturesstudy the governance effect involving the proportion of institutional investor holding,and research literatures without studying at other aspect of heterogeneity of institutionalinvestor, for example, long-term and short-term institutional investors,pressure-sensitive and pressure-resistant institutional investor, as well as different typesof institutional investors, which mainly include Securities Investment Fund, Securitiescompanies, Social Security Fund, Insurance company, QFII Fund and Trust Company.Some scholars defined long-term or short-term institutional investors basing at single institutional investors holding time, and didn’t consider about the horizon of the overallinstitutional investors’ holdings. Domestic and foreign scholars pointed out that thedominant factors of investment-cash flow sensitivity are informational asymmetry andagency problems. By examining the heterogeneity of institutional investors oninvestment-cash flow sensitivity to verify the effect of institutional investors ingovernance is a new perspective. We believe that the higher the proportion ofinstitutional investors, the longer of holding period, and the more independence,themore they have the power of supervision. They can alleviate informational asymmetryand agency problems in order to reduce the investment-cash flow sensitivity.This paper based on the sensitivity between investment expenditures and internalcash flow explores the effect of corporate governance of institutional investors withdifferent heterogeneity. This paper includes four hypotheses which are related toproportion and volatility of institutional investors holding, pressure-sensitive andpressure-resistant institutional investors, different types of institutional investors,combined with the nature of property rights in china. Following the FHP(1988) classicinvestment opportunity model and Vogt（1994）interaction by multiplying the itemmodel stepwise regression to verify institutional investors influence investment-cashflow sensitivity. Additional, we finish the robustness test, which provides additionalsupport. Through empirical analysis concluded as follow:Firstly, the company which has institutional investors shows lowerinvestment-cash flow sensitivity. Institutional investors play a role in the company’sexternal governance. Between state-owned companies and non-state-owned companies,the institutional investors reduce investment-cash flow sensitivity more significant innon-state-owned companies, which means institutional investors subject to certainconstraints in corporate governance in state-owned companies due to the policy-oriented,administrative intervention. Secondly, the higher the stake and the flower volatility(long-term) of overall institutional investors holding, the lower perform investment-cashflow sensitivity. Institutional investors are more likely to value investment philosophy,pay more attention to the company’s long-term effectiveness and development, and havea greater motivation to participate in corporate governance. Compared withpressure-sensitive institutional investors, pressure-resistant institutional investors reduceinvestment-cash flow sensitivity more significant. pressure-resistant institutionalinvestors have more independence and less commercial relations with investedunits,which participate in corporate governance and implement supervision more obvious. Thirdly, Securities Investment Fund reduces investment-cash flow sensitivitymost significant. Social Security, Fund Insurance Company, Trust Company and QFIIFund can not reduce the investment-cash flow sensitivity. This assumption has not beenverified.Overall analyses, institutional investors in china as a whole played a certain role inthe external governance mechanisms of company. Securities Investment Fund is stilldominant. The structural of development of institutional investors perform imbalance.On one hand，we should improve the shareholding structure, and enhance the overallstake of institutional investors. On the other hand, we should further optimize thestructure of the development of institutional investors. In particular to promote thedevelopment of Social Security and QFII Fund, and improve the policies and systems topromote the development of the Insurance company, so that various types ofinstitutional investors can play a role in the stock market. |
