Institutional Investor Heterogeneity,Stock Mispricing And Corporate Governance

Since the 1970 s,institutional investors have gradually become the dominant force in the capital markets of Western developed countries.In China,with the strong support of relevant policies,institutional investors continue to grow and develop with their large capital scale,professional talents and rich investment experience.Their scale and varieties continue to grow,playing an important role in improving the efficiency of capital markets.In addition,institutional investors have become major shareholders of listed companies,actively participating in corporate governance through “hand voting” and playing an important role in improving corporate performance.However,relevant research in recent years has gradually shown that institutional investors in the market are not the same.Different types of institutional shareholders have large differences in terms of capital size,investment style,and internal relationship with enterprises.What impact do heterogeneous institutional investors have on stock pricing and corporate governance? Are there any significant differences in these effects? Based on the heterogeneity perspective,this paper takes China's 2007-2017 Shanghai-Shenzhen A-share listed companies as a sample to empirically study the relationship between institutional investors,stock mispricing and corporate governance.This has important theoretical and practical significance for explaining the contradictory conclusions of the existing research on the impact of institutional investors and promoting the healthy and rapid development of institutional investors.Firstly,this paper sorts out the concept and division method of heterogeneous institutional investors and reviews the related literatures of institutional investors and stock mispricing,institutional investors and corporate governance.On this basis,this paper constructs the turnover rate indicator and classifies the eight major institutional investors into two types: dedicated and transactional.Then,based on the information asymmetry theory and behavioral finance theory,this paper studies the different effects of dedicated and transactional institutional investors on stock mispricing.It was found that firms with a higher percentage of dedicated(transactional)institutional investors experience less(more)misvaluation.In further analysis,this paper analyzes the above phenomena from the perspectives of information superiority and short-sighted behavior.The study found that,on the one hand,dedicated institutional investors have an information advantage over transactional institutional investors,so they can correctly assess corporate value.However,trading institutional investors have short holding times and it is difficult to grasp the internal information of the company,so it is easy to misjudge the value of the company,resulting in stock mispricing.On the other hand,transactional institutional investors have short-sighted behaviors.They have high turnover rates and frequent transactions.They mainly pursue short-term profits by “voting with their feet”.Therefore,transactional institutional shareholders often use the status of large shareholders to limit the long-term investment,which causes short-term profits to temporarily increase,misleading market investors and thus induce mispricing.Then,based on the principal-agent theory,stakeholder theory,and cost-benefit theory,this paper further explores the heterogeneity impact of two types of institutional investors on corporate governance.In order to describe corporate governance performance as comprehensively as possible,this paper selects variables from two perspectives: market performance and operating performance.In the measurement of market performance,the raw return rate of stocks and the abnormal rate of return are used to characterize.In terms of operating performance,we use the return on total assets and the return on net assets to calculate.The empirical results show that dedicated institutional investors are conducive to improving the long-term performance of enterprises,while transactional institutional investors will damage the long-term value of enterprises.In the robustness test section,this paper change the calculation method of stock mispricing,eliminates the sub-samples with merger and acquisition events during the sample period,eliminates the sub-samples with secondary equity offering during the sample period,and Heckman two-stage regression to conduct a robustness test.The results show that our main conclusions of this paper are still valid.Finally,based on the systematic summary of the conclusions,we propose corresponding policy suggestions from the perspectives of individual investors,enterprises and regulatory authorities.From the perspective of the heterogeneity of institutional investors,this paper studies the impact of two types of institutional investors on stock mispricing and corporate governance.On the one hand,it expands the research on the impact of institutional investors.On the other hand,this paper emphasizes the differences between institutional investors,distinguishes between different types of institutional shareholders,and provides new ideas for the impact of institutional investors.The research in this paper helps individual investors identify the types of institutional investors and avoid the “herd effect”.It also helps to raise the awareness of risk management of enterprises and increase the prudence of enterprises in making development decisions.At the same time,it also helps the supervisory authority fully understand the institutional investors and provide theoretical basis for the rational making of relevant policies,thus can better guide the healthy and rapid development of institutional investors.