Institutional Investment Shareholders: Theory, Practice, and Policy

Author: Wan Junyi
Publisher:
Publish Date: 2006-04-01
Features: Institutional investors have multiple institutional effects. Currently, the development of the institutional investor industry worldwide shows three major trends: one is that the institutional investor team continues to grow, and cross-border investment activities of institutional investors are becoming increasingly frequent; second, institutional investors are increasingly inclined toward equity investment; third, the active behavior of institutional investors is becoming an important corporate governance mechanism. Compared to developed countries (regions), the development level of institutional investors in China is significantly lower, and the task of developing institutional investors in China is urgent. Against this backdrop, systematically and in-depth research on institutional investors as shareholders has great theoretical and practical significance. Theoretical research reveals that institutional investors are essentially decision-makers, and they are decision-making systems with high rationality, preference for investment returns, and pursuit of satisfactory portfolios. When institutional investors invest in the stock market, they naturally become institutional investors as shareholders. In terms of preferences for share attributes, proactiveness in pursuing returns, and methods of exercising equity, institutional investors as shareholders differ fundamentally from ordinary legal entity shareholders. Due to intrinsic incentives from holding a large stake, institutional investors as shareholders are relatively effective in addressing internal agency problems, but they may also foster opportunistic behavior. Institutional investors as shareholders have a positive interactive relationship with the development of the stock market. Deregulation, enhanced supervision, and improvement of the relevant institutional environment are common experiences for countries in developing institutional investors. Although the performance of institutional investors in China's market has been mixed, empirical research shows that they have strong stock-picking ability, a collective investment awareness, and an overall risk-averse nature, aligning with the "prudent person" principle of trust management. China currently has significant room for developing institutional investors as shareholders. As long as institutional investors as shareholders are specifically constrained in formal institutional dimensions, informal institutional dimensions, and institutional implementation mechanisms, China's institutional investors as shareholders will usher in a spring of development.