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The relationship between the company and institutional investors investment in specific assets

Author: TangZuo From: www.yourpaper.net Posted: 2010-06-28 16:46:19 Read:
Abstract: academic hopes to play a role of supervision and constraints of institutional investors in corporate governance, but really want to play their role, there is still a way to go. Critical link in this section of the road is to the laying of the channels of the relationship between the institutions and enterprises, both sides need to be investment relations. This investment is highly specialized, and the only way to form a long-term mutually beneficial relationship between the two sides.
Keywords: dedicated assets; corporate governance; internal capital market

The key corporate governance depends on the coordination and communication between managers and shareholders relations, especially with the coordination and communication between the institutional investors, especially, how to do that is dedicated to explore the issues in this article.

First, the drawbacks of traditional corporate governance research

Traditional corporate governance research interests of shareholders as a starting point, so it will have at least the following questions:

(A) decision-making short-sighted
Governance mechanisms of the United States on behalf of the advocates of maximizing shareholder value, the company focused on access to high financial returns, the purpose of organizing a system to motivate managers in their efforts to achieve this goal, and incentive and control are complementary, Therefore, the control of the Board of Directors of the Company managers evaluation enhance the transparency of corporate finance as well as the basis of decision-making and investment allocation is primarily based on the financial indicators. Important investment, such as research and development, system construction, staff training and other difficult financial data display the value of these investments is not as an investment has been set aside, thereby reducing the company's future competitiveness.

(B) the moral hazard
Agency relationship between shareholders and managers, shareholders are the principals, the manager is the agent. Shareholder information disadvantage, but the manager has information superiority, managers can control information to seek personal gain.

(C) the largest shareholder governance
The relative concentration of the control of the largest shareholder has the ability to exert influence on corporate decision-making behavior. But large shareholders may by virtue of its control of the company the right to use the company resources for personal gain, especially in the context of large shareholders due to the dominance of the environment, the problem is even more serious.
This need has certain advantages in information and knowledge, the ability to have enough motivation to management supervision forces to contend with major shareholders, theorists now turned their eyes toward institutional investors. Although institutional investors in the present situation is ideal supervision counterweight to, however, really want to play out their role is still some way to go. Critical link in this section of the road is to the laying of the channels of the relationship between the institutions and enterprises, so that the communication and coordination mechanisms between them to become the norm, rather than the whim of the short-term behavior. Second, the relationship between specific assets

The Asset Specificity means, assets can be used for different purposes and by different users the extent of the use under the conditions without sacrificing production value. Assets the higher the degree of specificity, its reconfiguration in alternative uses or alternative users redeployment of use, the greater the loss of his value when sunk costs in the case of the withdrawal of investment occurs.
As mentioned earlier, to achieve the sincere cooperation between the institutions and investment companies, trust relationship must first too. The easiest way to achieve the trust of both relationship-specific assets invested. This is equivalent to between asset-backed, because this kind of input Once operational, it is difficult in a short period of time with no costs to recover, only long-term cooperation to both enrichment.
For institutional investors, the relationship-specific investment performance of the assets in order to reduce the number of portfolios, increase investment in certain enterprises, of course, this is a complex selection process. Institutions due to the narrowing of the scope of the portfolio, investment risk, and holds a number of shares of a particular enterprise, so the agency is very difficult in the case of the stock price decline to sell, so that, in reducing its own risk only way to actively participate in corporate governance, and to use their professional advantage, and help enhance corporate value and achieve profitability.
For businesses, due to the high degree of specialization of institutions so that both corporate governance and strategy formulation can get the help of the agency, more importantly, some big institutions have pricing power in the securities market, so with institutional investors good relationship between enterprises is very important, the question is how to build or how to invest in this relationship.

Third, corporate governance relationship specific assets investment

Investment relations, the focus is to gain trust. The relationship between the enterprises and institutions dedicated assets investment should mainly proceed from the following aspects:

Object (a) To become favored by institutional investors, companies must first have a good reputation, and based on trust between the two sides.

(B) the enterprise key management equity incentive. This is a very simple logic is compatible to make the interests of management with the interests of investors, management and investors to further the interests of the community. As mentioned above, the purpose of the introduction of institutional investors are mainly three: oversight of the management of the identity of shareholders; checks and balances as well as provide some professional help with the largest shareholder. As institutional investors due to a strong financial background, experience, shareholding enterprises can achieve a certain percentage, so there is enough power and the ability to conduct oversight and checks and balances on corporate management and controlling shareholders, is different from the small and medium-sized shareholders shares less collective action dilemma. However, as institutional investors can only participate in corporate governance as a director, while unable to participate in the full range of business management, and so are still at a disadvantage in the control ability. To make up for the lack of institutional investors in this regard, the best way is to corporate management equity incentive. As a result, management compensation and company stock price of close contact, and the market price of the stock depends on the performance of the company on the one hand, the other hand, depends on the attitude of the institutions. As mentioned before, the institutional trading of company stock is often the price fluctuations of the wind vane. The result is to invest in a company's stock, whose income depends on the careful management of the management; management remuneration in a certain extent, depending on the evaluation of the agency, this is a satisfactory mutual mortgage.

(C) communication and coordination mechanisms between institutional investors institutionalized and routinized. As institutional investors are not directly involved in business management, so it is difficult for the company's business strategy, market positioning and financial prospects have a clear understanding, therefore, companies must clearly pass information correct misunderstanding of investors and pay full attention to investors the views. Therefore, enterprises must be institutional innovation, communication and coordination mechanisms and institutions into the institutional system and maintain its long-term nature.
Relationship investment is an enhanced mutual understanding, and to communicate with each other and the process of the transaction cost savings. Asymmetric information, investors and investment in many respects, there are differences, it is difficult to reach a consensus.
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