Impacts Of Institutional Investors On R&D Input

It has already been proved by development histories of Europe, America and other developed countries that the degree of independent innovation of a country is mainly determined by strength and total sum of R&D input. With great importance attached to R&D input in recent years, China’s R&D expenditures are gradually increasing, certain achievements have been obtained, and the input sum already exceeds UK, France and other countries. In terms of economic aggregate in China, however, there is still a wide gap in R&D input strength between China and traditional developed countries in the world. Viewed from a micro perspective, enterprise is always the subject of a country’s R&D input. The R&D input strength of an enterprise can give a preferable expression to its long-run development capability. However, middle and small-sized enterprises, especially small and medium-sized hi-tech ones, are significant parts of market economy, which have certain innovative impetus, and also vigorously supported by national policies. The landmark of leapfrog development of small and medium-sized enterprises in China is Shenzhen small and medium-sized enterprise stock market released in2004. Enterprises listed in small and medium enterprise board are characterized with relatively high technological content, outstanding primary business and relatively fast speed of development. Although certain disadvantages may exist in capital and scale when compared with enterprises listed in main board, these enterprises can realize endogenous growth by planned R&D activities, and their risks are reduced to a large extent as well.Since the1980s, the number of institutional investors in developed countries presented an explosive growth. With continuously improving status of institutional investors in the capital market, original "Wall Street Rule" was yielded up, and the attitude of institutional investors towards corporate governance gradually turned from passively "voting with their feet" into positively "voting with their hands". Since then, institutional investor shareholder activism began to rise in foreign countries. In China, however, its economy is still in a transitional period, with a series of serious issues related to corporate governance, such as the single-large shareholder of state-owned shares, splitting of stock rights and insider control. Therefore, greater expectations are laid on the function of institutional investors in the capital market.Based on the above background, R&D input of an enterprise is crucial to long-term development of the enterprise. Moreover, R&D activities of an enterprise are characterized with high risks and high returns, resulting in easy occurrence of serious principal-agent issues. Considering that corporate governance is an effective approach to remit principal-agent issues, then whether institutional investors, for steady returns from the capital market, will participate in corporate governance and thereby affect R&D input of enterprises? The research in this paper not only can enrich the corporate governance theory from the perspective of external governance, but also is beneficial to deepen the rational knowledge towards institutional investors in China, provide valuable reference decisions to middle and small-sized enterprises accordingly, and promoting the improvement of middle and small-sized enterprises in R&D input and capability of independent innovation in a better way.Therefore, taking corporate governance as a medium and selecting listed companies in the manufacturing industry and information technology industry with R&D input published in middle and small capital stocks from2009to2011as samples, this paper makes an empirical analysis on totally603samples in201companies listed on small and medium board by using relevant models, and makes a research on relevant impacts of institutional investors on enterprise R&D input from four perspectives. This paper first inspects overall impacts of institutional investors on enterprise R&D input, and then divides institutional investors into pressure resistance ones and pressure sensitive ones, respectively testing relevant impacts of heterogeneous institutional investors on enterprise R&D input. After that, this paper divides these sample companies into different groups for a further research, respectively testing different impacts of pressure resistance type institutional investors on enterprise R&D input when enterprise ownership properties are different from the level of marketization at the location of the enterprise. Main research conclusions of this paper are described as follows: 1. Overall institutional investors are in significant positive correlation with enterprise R&D input, which indicates that institutional investors in China can participate in corporate governance, accelerate enterprises’investment in research and development, reduce agency costs to some extent, and give play to the function of positive shareholder. However, overall institutional investors have limited impacts on enterprise R&D input.2. Pressure resistance type institutional investors are in significant positive correlation with enterprise R&D input; while pressure sensitive type institutional investors have no obvious impacts on enterprise R&D input, which indicates that the three pressure resistance type institutional investors related to securities investment fund, social security fund and QFII, free from close business connections with listed companies, can energetically participate in corporate governance, and effectively supervise operating decisions of the management, thereby facilitating the improvement to enterprise R&D input. On the contrary, securities traders and other five kinds of pressure sensitive type institutional investors with close business connections are not beneficial to their participation in corporate governance and supervision over investment behaviors of the management.3. In non-state holding enterprises, pressure resistance type institutional investors are in significant positive correlation with enterprise R&D input. In state holding enterprises, however, pressure resistance type institutional investors have no obvious impacts on enterprise R&D input, which indicates that pressure resistance type institutional investors have relatively high sensibility to R&D input of non state-owned enterprises, and they can enhance the corporate governance level by actively supervising the management, having very obvious acceleration, and ensuring sustainable development of the enterprises. However, state-owned enterprises in China are subject to relatively much administrative guidance and intervention. Therefore, it is still difficult for pressure resistance type institutional investors in contending against enterprise "insiders". Besides, some institutional investors, for private interests, choose to conspire with the management so as to reduce innovation activities of the enterprises, resulting in serious damages to long-term values of the enterprises.4. In regions with a relatively high degree of marketization, pressure resistance type institutional investors are in significant positive correlation with enterprise R&D input; while in regions with a relatively low degree of marketization, pressure resistance type institutional investors have no obvious impacts on enterprise R&D input, which indicates that it is relatively complete with respect to government by law and protection of investors’rights and interests in regions with a relatively high degree of marketization, pressure resistance type institutional investors have better effects in participating in corporate governance, and they play positive roles in promoting enterprise R&D input. However, effective institutional guarantee is unavailable in regions with a relatively low level of marketization. The positive supervision function of pressure resistance type institutional investors is under restrictions, and governance costs are relatively higher, having no obvious impacts on enterprise R&D input.According to research conclusions, three policy recommendations are proposed in this paper for how institutional investors can effectively participate in corporate governance and facilitate R&D input of listed companies in China:ⅰ) improve the share holding proportion of pressure resistance type institutional investors, and guide long-term investment behaviors of institutional investors; ⅱ) reduce administrative intervention of state holding enterprises; and ⅲ) make all-round improvement to the overall marketization level of China.Innovations of this paper are described as follows:first, a quantitative research is made onto the impacts of institutional investors on corporate governance from the perspective of the game theory, extending the research perspective of institutional investors participating in corporate governance. Second, this paper refers to the practice of Brickley (1988), specifically dividing institutional investors into pressure resistance type and pressure sensitive type. Then, an in-depth research is made onto different impacts of pressure resistance type institutional investors on enterprise R&D input from the perspectives of micro-environment and macro-environment respectively based on similarities and differences of nature of enterprises’stock rights and marketization level of different regions. At present, references related to this research are unavailable. At last, materials necessary for enterprise R&D input are manually collected by most scholars in several projects disclosed by statement notes. However, the disclosure of R&D input is relatively disordered and incomplete in notes, resulting in easy data distortion and thereby serious impacts on empirical results. Data in this paper is mainly sourced from total sum of R&D input continuously and completely disclosed in director’s reports of small and medium enterprise board listed companies. Therefore, research conclusions drawn are comparatively more reliable.Limitations and future research orientation of this paper are mainly represented in two aspects:firstly, this paper selects companies listed in the manufacturing industry and the information technology industry in Shenzhen small and medium-sized enterprise stock market, without considerations to other industries with relatively less R&D input in this market. Besides, the time span of sample data is only three years, leading to a relatively small number of samples. Therefore, its applicability will be limited to certain extent. Other industries can be added into the future research for separate research, and the time span of sample data can be lengthened. Thus, more accurate research results can be obtained. Secondly, institutional investors are divided based on close business connections with listed companies. This division has certain subjectivity, and different persons will adopt different standards for division. Considering that different division standards may probably lead to differences in research results, therefore, actual demands can be combined in subsequent researches to consider heterogeneity of institutional investors, and research relevant impacts of institutional investors’ share holding on R&D input of listed companies under different division standards. This is also a research orientation with more practical significance in the future.