Abstract
The China stock market and institutional investors have experienced an extraordinary development during the past decades. Therefore, it is important to examine the real effects of institutional investors. This paper investigates relationship between institutional investors and firm value using Chinese listed companies from 2008 to 2014. This paper finds that institutional investors help improve firm value. Further analysis shows that institutional investors improve firm value by increasing cash dividend payout. The empirical results of this paper show that institutional investors help improve corporate governance and reduce agency costs.
Highlights
During the past 30 years, institutional investors developed rapidly in the global financial system, and have become an important force in the capital market both in developed countries and emerging markets
The maximum value is 73%, the minimum value is 0%, and the standard deviation is 19%, which suggest that the variation of the proportion of institutional investors’ shareholding is lager, which is closely related to the specific circumstances of individual stocks
It suggests that institutional investors can enhance the corporate value through participating in corporate governance, and affecting the decision process of cash dividend
Summary
During the past 30 years, institutional investors developed rapidly in the global financial system, and have become an important force in the capital market both in developed countries and emerging markets. (2016) Institutional Investors, Dividend Policy and Firm Value—Evidence from China. Xiong shares held by institutional investors was only 0.687% at the end of 2000, while it jumped to 19.964% at the end of 2005 and reached 51.535% at the end of 2015 [1]. Securities investment funds, brokerage, insurance, and general corporate and other institutional investors have become the backbone of the securities market. We find that firm value is positively correlate with the institutional investors’ shareholding, and institutional investors do have a significantly help on enhancing corporate value. This thesis studies how institutional investors affect the value of companies from the following aspects: dividend policy. The empirical results show that institutional investors are conducive to enhance the company’s cash dividend payment level, and it helps to reduce agency costs and inefficient use of free cash flow.
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