Abstract
Guiding institutional investors to actively participate in corporate governance is a hot issue to improve the internal governance of China’s listed companies. This study seeks to provide a comprehensive understanding of the mechanism that underlies the governance effects of the heterogeneity of institutional investors on the cost of capital, and the influence of ownership structure on the relationship between them. Using an unbalanced panel data on A-share listed companies of Shanghai and Shenzhen in China’s capital market during the 2014–2019 period, this study reveals how institutional investors with longer holding period and higher shareholding ratio are negatively associated with the cost of capital in China’s capital market. Furthermore, this study successfully confirms the moderating effect of ownership structure in the relationship between institutional investors and the cost of capital. China’s state-owned enterprises are more likely to introduce improvements at the corporate governance level, and ownership concentration weakens the negative influence of institutional investors on the cost of capital. The research contributes to a deeper understanding of the impacts of institutional investor’s heterogeneity and ownership structure on the cost of capital in China. In the process, the study yields useful implications for the theory and practice of corporate governance.
Highlights
Over the last two decades, under the rapid development of institutional investors’ strategic guidance, the number and scale of China’s institutional investors has significantly expanded
This study represents an empirical investigation of the effects of different types of institutional investors on the cost of capital, and the interaction of institutional investors and ownership
Institutional investors with the higher shareholding ratio have greater negative effect on the cost of capital, and the longer holding period, the more favorable the conditions to decrease the level of the cost of capital
Summary
Over the last two decades, under the rapid development of institutional investors’ strategic guidance, the number and scale of China’s institutional investors has significantly expanded. Questions about the principles and policies of institutional investors’ development have been raised. With a new round of mixed ownership reform in China from 2013, state-owned enterprises are expected to implement the governance effects of mixed public-private ownership by introducing private capital [1]. As institutional investors are an important source of capital with immense financial strength and investment potential, the role played by institutional investors in the development of China’s state-owned enterprises deserves serious discussion. At the end of 2016, a total of 16.3% of the market value of the Shanghai and Shenzhen stock markets in China was invested in public offerings, private funds, insurance, securities, trusts
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