Institutional investors and corporate performance: Insights from China

Abstract

This study uses the annual data of Chinese A-share listed companies held by institutional investors during the period of 2005-2016 for empirical analysis. First, this study uses the panel regression model to explore the relationship between institutional ownership and stock return volatility. Then, the CAPM one-factor model and the Fama-French three-factor model are used to analyze the relationship between institutional ownership and idiosyncratic risks. Finally, we estimate the relationship between institutional ownership and corporate governance. Furthermore, we compare the empirical results before, during, and after the crisis. This study uses the Hausman test and the endogenous test to validate the results. The empirical results show that the management behavior of independent institutional investors is more obvious post-crisis. However, gray institutional investors have no impact on idiosyncratic risks. In the regression of the CAPM one-factor model, domestic institutional investors have effectively reduced the idiosyncratic risks before the financial crisis. Foreign institutions' monitoring performance before, during, and after the crisis is not obvious. All institutional ownership has a significant positive impact on the top 10 shareholders, but independent and domestic institutional ownership has a significant negative impact on senior shareholders. Institutional ownership has little impact on the movement of the first shareholder and CEO.