The Research On Shareholding Preferences Of Institutional Investors

Since 30th October 2009 when Growth Enterprises Market (GEM) was launched in China, it has witnessed IPO underpricing phenomenon, three extremely highs (high stock price, high P/E ratio, and over-raised capital ratio), reduction of executives and so forth. These abnormal phenomenon reveal several problems existed on GEM, such as the lacking of rules, the lacking of supervision and the delay of delisting. Although there exists so many problems, institutional investors are very optimistic about investing in GEM stocks. By the end of the third quarter of 2014, institutional investors has invested in 97.96% GEM listed companies, and has held 31.17% of total market value of trade of GEM market. Institutional investors have become a main participant in GEM. Are the factors, which affect institutional investors’preferences for GEM stocks, different from the factors that influence institutional investors’preferences for the main board of stock market? How can these preferences for GEM stocks indicate the investment psychology of institutional investors?This paper chose a sample of 2133 observations consisting of the GEM companies that has been listed for 24 months from the fourth quarter of 2011 to the third quarter of 2014, used correlation analysis and linear regression analysis to examine the preferences for GEM stocks. The main results are as following. Institutional investors prefer high company value, high short-term growth ability, no reduction of executives, high concentration of shareholdings, but show no interests in the long-term growth ability of companies. Securities investment funds prefer high company value, high short-term growth ability, no reduction of executives, low concentration of shareholdings, and dislike high long-term growth ability. Security companies prefer low short-term growth ability, low concentration of shareholdings, and show no interests in company value, reduction of executives, and long-term growth ability of GEM companies. Social security funds prefer no reduction of executives and low concentration of shareholdings and low long-term growth ability. QFII prefer low concentration of shareholdings, show no interests in company value, no reduction of executives and growth ability of GEM companies. Both securities investment funds and security companies have adopted momentum trading strategy and contrarian trading strategy. This paper finds out that the purpose of institutional investors to hold GEM stocks is to gain short-term returns, not to gain long-term returns through the way of participating in company governance. Institutional investors haven’t shown a certain degree of adopting the prudent principle.This paper discusses the preference of institutional investors for GEM stocks considering the unique features of GEM, which has both theoretical significance and practical significance. On one hand, it is the exact unique regulations and operating mechanism of GEM that influence investment decisions institutional investors have made. It is complementary to existing theories on shareholding of institutional investors. On the other hand, it deepens the understanding of investment philosophy of institutional investors and whether China’s market has become weak-form efficient market if digging into the factors affecting shareholding behaviors of institutional investors on GEM. These information helps to guide institutional investors to improve themselves and actively participate in corporate governance on GEM efficiently, thus promoting the healthy development of GEM.