Abstract
Theoretical and empirical analyses of listed companies owned and controlled by the state making private placement transactions during 2006 and 2013 were carried out to measure the short-term announcement effect of strategic and financial investors’ subscription for new shares in listed companies owned and controlled by the state on corporate governance and long-run performance of these listed companies. It was found that private placements had a positive influence on the performance of a state-owned and -controlled listed company as they brought new institutional investors to the company; strategic investors who subscribed for new shares in a state-owned and -controlled listed company have appeared to cause an announcement effect greater than financial investors; state-owned and -controlled listed companies that attracted strategic investors with private placements showed a higher level of corporate governance and better long-run performance in comparison to those launching private placements to financial investors only. This study reveals the differences between strategic and financial investors in their influences on short-term announcement effect, corporate governance, and long-run performance of a state-owned and -controlled listed company when they enter into private placement transactions with the company. These findings provide new perspectives on the economic consequences arising from the involvement of external institutional investors in private placements of state-owned and -controlled listed companies, which, to a certain extent, facilitate the decision-making process in private placement transactions and promote the mixed-ownership reform.
Highlights
Considering the rapid development of institutional investors since 1980s, it has been heatedly discussed whether institutional investors impact a company’s corporate governance and performance
The main contributions of this study are two-fold: (1) Despite the existing studies on the role of institutional investors in corporate governance and its economic consequences, little research has been done on the impact of institutional investors on corporate governance in light of private placement transactions with state-owned and -controlled listed companies, as well as the economic consequences associated with their subscription for new shares of the listed companies; this study provides a new perspective on the role of institutional investors in corporate governance by discussing whether a listed company owned and controlled by the state can fill the gap left by the lack of supervision from controlling shareholders via private placements to institutional investors and improve its performance by engaging institutional investors in corporate governance
With StraInv’s minimum value being zero, only financial investors are involved in the private placements of some state-owned and -controlled listed companies; StraInv’s maximum value indicates that both strategic and financial investors participate in the private placements of some state-owned and -controlled listed companies
Summary
Considering the rapid development of institutional investors since 1980s, it has been heatedly discussed whether institutional investors impact a company’s corporate governance and performance. Shareholder activists consider institutional investors as an active factor in corporate governance (Parrino et al, 2003; Ferreira & Matos, 2008) Those who argue the opposite view that larger market fluctuations occur when institutional investors, who appear to lack the foresight, make transactions frequently and “vote with their feet” by selling their shares (Edmans, 2009; Edmans & Manso, 2011; Hirschman, 1970). Through theoretical and empirical analysis, this study answered the questions above using the governance effect of institutional investors and the principal-agent theory, and thereby revealed that domestic state-owned and -controlled listed companies might implement the mixed-ownership reform by private placements to external institutional investors. This study extends the research on economic consequences arising from private placements of listed companies and presents an in-depth analysis of the relationship between institutional investor heterogeneity and company performance
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