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The board of directors of listed companies in China need to institutional investors

Author: ShiJianLiang From: www.yourpaper.net Posted: 2009-04-02 21:13:07 Read:
[Abstract] In this paper, the analysis of weaknesses in governance of institutional investors own advantages and listed companies, summed up the experience of institutional investors to participate in the management of listed companies in the U.S. stock market, which affirmed the participation of institutional investors as shareholders in the corporate governance of listed companies positive effect. Into the rationality and feasibility study of the boards of listed companies on China's institutional investors focus on institutional investors from China into the listed company's board of directors may exist to do a detailed analysis to further improve and practice from the regulatory and institutional construction and mechanisms other aspects of the institutional investors to participate in the governance of listed companies.
[Key words] listed companies; Board; institutional investors

The board of directors of listed companies is the need for institutional investors, we should say yes. At present, China's listed companies ubiquitous dominance, internal control and other issues. The many major shareholder (or actual controller) in order to obtain more shareholder value, direct interference in the operation of the business decision-making, and even the decision of the board of directors should have the final say. For this reason, many small investors suffered heavy losses. In order to change this situation, the Commission issued new regulations to allow institutional investors to enter the board of directors of listed companies and to participate in the company's management expect institutional investors to be able to restrict the controlling shareholder. This policy is whether we can improve the system of governance of listed companies, to maintain the stability of the capital market, to promote the rapid and healthy development of China's listed companies, this paper analysis.

First, institutional investors and its characteristics

Is generally believed that institutional investors are institutional securities investment activities with its own funds or funds raised from investors who dispersed them. Institutional investors in China mainly refers to the various intermediaries engaged in securities investment activities, such as: fund companies, insurance companies, investment companies, and commercial bank trust institutions. Institutional investors have the following characteristics:
(A) collapse of idle funds, centralized-decentralized equity
Institutional investors in China will be mainly funded social idle funds. Most investors in order to obtain greater benefits, but also willing to own idle funds to institutional investors allowed to invest in operation, the objective for institutional investors and lay a solid financial foundation. Institutional investors through the purchase of shares of listed companies, and together, effectively restricting the controlling shareholder of a powerful "forces".
(B) has a wealth of experience and deep expertise
China's institutional investors to fund the company, a member of the fund company generally has a deep knowledge. Not only do they understand the investment knowledge and a wealth of practical experience, has a deep understanding of and research on the capital market. Most of them also has a wealth of business management knowledge, are very familiar with the operation and management of enterprises, but also be able to use their knowledge and experience in the analysis and evaluation of the enterprise, so as to maintain the interests of the majority of investors.
(C) take into account the interests of small shareholders
The agent as a social dispersed investors, institutional investors bear the pressure on margins, it is bound to find ways to prove their investment judgment and decision-making. Once the major shareholders of listed companies harm the interests of the company, which means that institutional investors will be compromised. Therefore, institutional investors will naturally not stand by and will find ways to actively respond to the losses to a minimum. Institutional investors suppression internal access to the internal revenue are often able to benefit minority shareholders.

Second, foreign institutional investors to participate in the experience of the management of listed companies

U.S. institutional investor participation in corporate governance a long time, has extensive experience in corporate governance, it is worth learning from. To sum up the following three:
(A) ownership of institutional investors to participate in the governance of listed companies premise
Institutional investors have strong economic strength, have sufficient funds to purchase a certain percentage of equity of listed companies, which have the right to occupy a place in the general meeting and participate in the resolution of the general meeting of shareholders to participate in the company's business decision-making, to prevent the manipulation of a few large shareholders Company, harm the interests of small shareholders.
(B) the regulated capital market environment is the basis of institutional investors to participate in the governance of listed companies
Institutional investors based primarily on the value of the invested enterprises to make investment decisions, and effective capital markets largely reflects the dynamic of the listed companies, the static value, can fully reveal the information of the target company, prompting institutional investors concerned about the management of listed companies situation. This institutional investors to participate in the governance of the target company has played a positive role, making it the Target Company a higher premium income or long-term stable income in the capital market.
(C) the establishment of institutional investors to participate in the corporate governance of listed companies to adapt the regulations and regulatory mechanism is a system to protect institutional investors to participate in the governance of listed companies
In the United States, once the period due to the excessive restrictions of the law, resulting in a negative speculative phenomenon of institutional investors. With the changing economic situation, the government began relaxing controls on financial markets and financial institutions. Allow the owner to corporate governance measures binding or suggestions, also allows direct contact between the equity holders will reduce the participation of institutional investors in corporate governance costs and potential liability. Only through continuous improvement with suitable laws and regulations, is the participation of institutional investors in corporate governance system to protect.

Third, our institutional investors into the rationality and feasibility analysis of the listed company's board

(A) institutional investors to participate in the decision-making of the Board has a very important practical significance
Previously listed companies operating decisions made by the board of directors, institutional investors do not participate in corporate governance. Most of the listed company's equity ownership concentration in the hands of a few large shareholders, the remaining equity is more dispersed, the major shareholder in the operation of the behind the scenes, for their own personal interests, damage the interests of minority shareholders. Many major shareholders of listed companies, stock market speculation hoarding money, blind expansion of scale, leading to the development of the securities market is very unstable. End of 2007, the Commission issued a document to permit institutional investors to enter the board of directors of listed companies, to participate in the company's internal governance, institutional investors played a certain extent, to strengthen the role of ownership concentration, the options are no longer as before dispersing. At the same time, institutional investors, as a holder of a large number of shares, not only can effectively restricting the controlling shareholder to reap the benefits of control, safeguarding the interests of medium and small investors and stock market stability.
(B) institutional investors in a listed company occupies a pivotal position
The huge influx of database statistics, as of April 29, 2007, the annual report of 1496 listed companies in Shanghai and Shenzhen 823 listed companies tradable shareholders in the figure of the fund, accounting for the total number of domestic listed companies of 55.01%. The frequency of various types of institutional investors appear in the list of top ten tradable shareholders and shareholdings are shown in Table 1.

The above data indicate that institutional investors in listed companies occupy a seat position, and is involved in company decision-making and management. ZTE H shares issued, for example, July 20, 2002, the board of directors of ZTE H shares issued at the same time the Board also addressed the issue of strategic significance for enterprises. Nevertheless, the program still attracted the opposition of the securities investment fund led by institutional investors; issued supporters against the action taken, but the final Board of Directors of the Company was able to make a termination issue resolution.
(C) the independent director system itself defect exists
Independent director system is also the Commission the implementation of a system to regulate corporate governance, to prevent the largest shareholder behind the operation of listed companies. This system since the implementation from 2001, played a certain role, but the effect is not large, because the more of its limiting factor. Listed companies in common: high-quality independent directors, but most of the lack of management experience; origin of the independent directors are not independent, part of the terms of reference of nominal; independent remuneration of independent directors, their remuneration given by the supervision of listed companies, but supervision of listed companies, the effect can be imagined; independent directors occupation is not independent, these things, and means the board of directors of listed companies in need of a new restricting the power of the largest shareholder, and institutional investors happens to be currently serves as a good the best choice for this role.
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