Institutional Investors And Corporate Governance

In the past decades,institutional investors are gradually becoming the dominant force in China's capital market.Sophisticated as they are,whether institutional investors play a role in corporate governance is of great significance to the development of capital markets.Considering the endogeneity between institutional investors' selection ability and firm performance,this paper uses the quarterly data of A-share listed companies from 2006 to 2016 to perform panel granger test and construct propensity score matching – difference-in-difference model to test the monitor effect of institutional investors.Empirically,this paper finds that there is a significant positive correlation between institution shareholding measures such as the institutional investors' shareholding ratio and fund order flow,and firm performance such as stock returns,Tobin's Q,return on assets and earnings per share.Second,fund order flow is the granger cause of fundamentals of the company.Third,there is a causal positive relationship between fund holding and firm performance such as stock returns,Tobin's Q value,total return on assets,and earnings per share.As a result,institutional investors play a role in corporate governance.