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: first, the institutional investor base continues to expand, and cross-border investment activities of institutional investors are becoming increasingly frequent; second, institutional investors are increasingly inclined toward equity investments; third, the active behavior of institutional investors is becoming an important corporate governance mechanism. Compared to developed countries (regions), China's institutional investor development level is significantly lower, making the task of developing institutional investors urgent. Against this backdrop, conducting systematic and in-depth research on institutional investors as shareholders holds 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 a pursuit of satisfactory portfolios. When investing in the stock market, institutional investors naturally become institutional investors as shareholders. In terms of preferences for stock attributes, proactiveness in pursuing returns, and methods of exercising equity, institutional investors as shareholders differ fundamentally from ordinary legal entity shareholders. Driven by intrinsic incentives from holding larger stakes, 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 symbiotic 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 China's institutional investors have a mixed reputation in the market, empirical research shows that they have strong stock-picking capabilities, a collective investment awareness, and an overall risk-averse nature, aligning with the "prudent man" principle of trust. China currently has significant room for developing institutional investors as shareholders. As long as targeted measures are taken to alleviate the specific constraints faced by institutional investors as shareholders in formal institutional dimensions, informal institutional dimensions, and institutional implementation mechanisms, China's institutional investors as shareholders will usher in a spring of development.