Stewardship Code Research Articles

Do Institutional Investors Play a Meaningful Role in the Effective Implementation of Corporate Governance on SDG?

Objective: Corporate governance is a recent development in Kuwaiti financial markets. Corporate governance principles have created several new concepts, such as the independence of directors, the establishment of various committees, the separation of the CEO from the chairman of the board, and other related principles. This article will discuss how institutional investors can play a meaningful role in the effective implementation of Corporate Governance Principles. The primary aim of this research article is to seek a detailed understanding of the Kuwait Corporate Governance Code (KCGC) as it relates to instituting a special code for institutional investors. Method: Solving legal problems and finding the best way to apply special laws can best be highlighted by using a comparative legal analysis. This methodology allows scholars to compare the laws of several countries to find alternative ways of addressing legal issues. This research article will compare legislation in the developed market in the UK to evaluate its potential effectiveness in averting future problems and bringing a better understanding of this subject in Kuwait. Result & Conclusion: The institutional investor plays an influential role in increasing the effectiveness of the principle of commitment to the ‘Comply or Explain’ regime. In the UK, the stewardship code for financial institutions was issued to give them control and responsibility over the application of the governance system. The article suggests that institutional investors should play a more active role in insisting on the application of corporate governance principles. It considers the ‘Comply or Explain’ regime and how it is being used effectively by companies backed by institutional investors. In addition, a new corporate governance code for institutional investors should be developed, similar to the UK Stewardship Code.

Investor stewardship disclosure and firm R&D investment

PurposeThis study explores the association between institutional investors’ stewardship activity, disclosed under Japan’s Stewardship Code, and the R&D investments of their investee companies.Design/methodology/approachRecognizing the pivotal role of R&D investment in long-term value creation, this study uses comprehensive data from institutional investor disclosures to assess the impact of stewardship activity on their investee companies.FindingsThe findings show that investor stewardship activity is a factor that influences strategic R&D investment. Specifically, a positive association is found between code-compliant institutional investor shareholding and R&D investment, contingent on high levels of stewardship activity.Originality/valueBy using stewardship disclosures to measure stewardship activity, this study sheds new light on institutional investors’ role in promoting R&D investment. The findings suggest that stewardship regulation is a valid governance policy mechanism to the extent that it promotes stewardship activity. Moreover, the findings show that stewardship disclosures provide valuable information about the potential value enhancement associated with institutional shareholding.

Stewardship code adoption and firms’ decisions on treasury shares: Evidence from South Korea

This study examines the relationship between institutional blockholders’ stewardship code adoption (the stewardship code adoption) and firms’ treasury-share-related decisions. Using the data of firms listed on the Korea Exchange from 2017 to 2019, this study finds that the stewardship code adoption has a negative relationship with share repurchase and a positive relationship with treasury share cancellation, and that the negative relationship between the stewardship code adoption and share repurchase is more pronounced for institutional blockholders with long-term investment stance. In addition, this study further finds that the stewardship code adoption can affect the timing of firms’ decisions on treasury share cancellation, reducing the risk from long-term holding or opportunistic disposition of treasury shares. The results from this study implies that the increase in shareholder activism triggered by the stewardship code adoption is to enhance shareholder value.

The Effect of Korean Stewardship Code on the Association between Investment Decision of National Pension Service and ESG

The Effect of Korean Stewardship Code on the Association between Investment Decision of National Pension Service and ESG

Internal monitoring mechanisms and corporate environmental and social performance: Evidence from Korea

This study investigates the relationship between corporate environment and social (ES) performance and the governance factor by examining the effect of internal monitoring mechanisms on a firm’s ES performance. We find that institutional ownership, especially pension investors, induces corporate ES performance. To address potential endogeneity concerns, this study employs the adoption of the Stewardship Code in Korea as a quasi-natural experiment, and we find consistent results. Outside directors also positively affect a firm’s ES performance, and this positive impact is more pronounced with institutional investor holding, suggesting that internal monitoring for corporate ES performance might complement each other. Furthermore, a firm’s better ES performance motivated by internal monitoring appears to bring a higher firm value. Overall, this study suggests that internal monitoring mechanisms can induce firms’ non-financial performance and eventually contribute to shareholders’ value.

The False Hope of Stewardship in the Context of Controlling Shareholders: Making Sense Out of the Global Transplant of a Legal Misfit

Abstract In 2010, the United Kingdom issued the world’s first stewardship code. Since then, stewardship codes have been issued in many of the world’s leading economies and now exist in twenty jurisdictions on six continents, with more jurisdictions considering adopting them. In the United Kingdom, stewardship codes were promised to transform rationally passive institutional investors into actively engaged shareholders to prevent another global financial crisis (GFC). More recently, the new 2020 U.K. Stewardship Code (U.K. Code) has been promoted as a mechanism to save the planet by incentivizing institutional investors to pressure listed companies to focus on environmental, social, and corporate governance (ESG). There is a vigorous debate and developed literature on whether the U.K. Code will achieve these goals. However, what has been lost in this debate is that outside of the United Kingdom/United States it may not matter nearly as much if stewardship succeeds in changing the behavior of institutional investors. This is because, with the notable exception of the United Kingdom/United States, institutional investors are collectively minority shareholders in most listed companies in almost every jurisdiction in the world. Moreover, in almost every jurisdiction, with the notable exception of the United Kingdom/United States, most listed companies already have a rationally active—non-institutional—controlling shareholder as their “steward.” Why then have jurisdictions around the world adopted U.K.-style stewardship codes which are designed based on the assumption that institutional investors collectively control most listed companies? This Article answers this question by undertaking the first in-depth global comparative analysis of the curious transplant of U.K.-style stewardship codes into jurisdictions dominated by controlling shareholders and examines the role that stewardship plays in these jurisdictions. It does this by drawing on a unique collection of recent in-depth case studies on stewardship in twenty-two jurisdictions by leading corporate law experts, hand-collected data analyzing the content of every stewardship code that has ever been issued, and fresh hand-compiled data on shareholder ownership structures in listed companies around the world. It reveals that stewardship has been coopted by governments and institutional investors to serve their own diverse purposes—a troubling trend which will likely be exacerbated post-Covid-19, when an authentic focus on an inclusive society and the environment will be more critical than ever.

Institutional investor stewardship and material sustainability information: Evidence from Taiwan

Institutional investors generally promote better sustainability disclosure and performance quality, which emphasize environment, social, and governance (ESG) development. Utilizing the SASB standards that improve the financial materiality of sustainability information, we find that institutional investors in Taiwan foster both material and immaterial ESG disclosure and performance. Thus, institutional investors seem to target the common good and follow the stewardship code instead of focusing only on ESG performance that closely relates to firm value. Our findings are driven by domestic rather than foreign institutional investors, suggesting that domestic institutions enjoy some information advantage and therefore drive ESG improvements more efficiently.

스튜어드십 코드와 일본기업의 연구개발투자

Purpose: This paper explores the influence of both domestic and international institutional investors, recognized as emerging outside blockholders in Japanese firms, on R&D investment. The study aims to understand how these investors impact R&D spending, a crucial factor for sustainable growth, particularly in the context of the implementation of the Stewardship Code.
 Research design, data, and methodology: The analysis employed panel analysis on 105 manufacturing companies listed on Nikkei225 from 2014 to 2020. We used the intensity of R&D as the dependent variable, with institutional investors holding more than 3% of each company’s shares as the independent variable. By classifying institutional investors, we compared the results between domestic and foreign institutional investors.
 Results: The analysis revealed that outside blockholders had a significantly positive effect on R&D. However, when institutions were classified, different results emerged. While domestic institutional investors had a significant positive impact on R&D, foreign institutional investors did not yield statistically significant results. Additionally, the financial institution variable, acting as the control variable and related to insider investors, consistently demonstrated a significantly negative effect across all models.
 Implications: Despite foreign institutional investors dominating the Japanese stock market, it was found that domestic institutional investors have emerged as significant outside blockholders in each firm. Traditionally criticized as passive investors, domestic institutional investors are shown to influence and promote R&D for long-term growth, in line with the Japanese stewardship code. While foreign investors are often associated with potential decreases in R&D for short-term gains such as ROE and dividends, no significant evidence was found. Moreover, with increasing stake ratios, foreign investors have the potential to positively impact Japanese firms in the future.

Fostering socially responsible stewards: CSR and investment funds in India

ABSTRACT In 2013, the Indian government mandated all companies to spend a portion of their profits on Corporate Social Responsibility (`CSR') activities but did not require companies to incorporate sustainability into their business, leading the statutory provision mandating CSR to become a box-ticking exercise. This approach of tick-box compliance with the CSR mandate is now being questioned by various investment funds that are actively pushing for the incorporation of Environmental, Social and Governance (`ESG') concerns into the business practices of their portfolio companies. While the Stewardship Codes promulgated by the various Indian regulators expressly mandate investment funds to monitor the ESG risks of their portfolio companies, there are no sanctions for non-compliance. This paper suggests the introduction of a market-based enforcement mechanism for the Stewardship Codes to enhance their effectiveness and practical relevance in the Indian legal framework.

Does a Stewardship Code Improve the Firm Valuation and ESG Factors in India?

This is the first study from an emerging market to examine the effect of stewardship codes on the relationship between institutional investors' (IIs) ownership and firm valuation, along with environmental, social, and governance (ESG) factors3.. Using all S&P BSE listed non-financial firms data from financial years 2014-2015 to 2022-23, the results reveal a negative relationship between future firm value and II's ownership. Notably, stewardship code adoption does not affect Independent institutional investors' (IIIs)/ mutual fund (MF) ownership relationships with future firm valuation; however, Other institutional investors' (OIIs) negative relationship gets more profound. Difference in Difference (DID) analysis results confirm that the stewardship code positively affects IIs' and firm valuation relationship concerning firms with low promoter ownership than firms with high (more than 50%) ownership. However, the effect of the stewardship code changes throughout the different levels of Tobin Q. We find that an increasing IIs ownership enhances the likelihood of a positive change in ESG and its factors in which the environmental (E) factor contributes substantially . Further, a positive change in the governance score is associated with other institutional investors' (OIIs) ownership. Adopting the stewardship code strengthens the association between MF ownership and ESG factors.

Institutional Investor Stewardship in Taiwan: The Taiwan Stewardship Code's Ineffectiveness and Potential Improvements

Institutional Investor Stewardship in Taiwan: The Taiwan Stewardship Code's Ineffectiveness and Potential Improvements

지속가능한 유아교육을 위한 유아교육과정 운영 의사결정구조

The purpose of this study is to provide a basis for sustainable development education in early childhood education by examining the decision-making structure of early childhood curriculum management as the governance structure of ESG related to sustainable development. The results of examining the five factors in the decision-making structure of early childhood curriculum management, such as children, parents, national level curriculum, directors of early childhood education institutions, and teachers are as follows. Children are divided into maturationism, behaviorism, and constructivism according to the perspective of viewing the development of children, and their influence on the decision-making structure is determined. Based on the stewardship code, parents' demands are reflected in the national level curriculum and directors of early childhood education institutions to affect the decision-making structure. The national level curriculum affects the decision-making structure through a re-understanding of the play-centered curriculum that reflects the educational backgrounds and constructivist educational beliefs of early childhood teachers. Directors of early childhood education institutions affect the decision-making structure according to the type of institution. Finally, teachers affect the decision-making structure according to the process of reforming the national level curriculum and educational beliefs. Therefore, it was discussed that children, parents, national level curriculum, directors of early childhood education institutions, and teachers can affect the decision-making structure of early childhood curriculum according to their perspectives.

Effects of Shareholder Proposals on Corporate Governance and Firm Value: Focusing on Strengthening Shareholder Rights Following the Introduction of the Stewardship Code

This study examines the impact of shareholder proposals on corporate governance and stock prices. In particular, it verifies the validity of the Stewardship Code, in terms of strengthening shareholder rights, by analyzing the situation before and after its introduction. Using a sample of 474 shareholder proposals submitted in general meetings from 2010 to 2021, we find that corporate governance improves not only in the original grade, but also in the adjusted grade after the shareholder proposals. Improvement in governance structure is evident after the introduction of the Stewardship Code. The amendment to the Articles of Incorporation by the Agenda showed the greatest improvement. By type of voting right, the degree of improvement in governance structure is higher when in favor of, than against, shareholder proposals, and in opposition to management proposals. Additionally, the higher the voting rights ratio, the better the governance rating. For institutional investors, pension funds have the greatest impact on rating improvements. However, shareholder proposals do not significantly affect corporate value. The cumulative abnormal return continued to increase for two days, before and after the voting date, after the introduction of the stewardship code. Accordingly, it is demonstrated that the cumulative abnormal return increases significantly after the introduction of the Stewardship Code, especially when there is a change in the articles of incorporation.

The Bank of Japan’s equity purchases and stock price crash risk

This paper documents a negative relationship between the Bank of Japan’s indirect ownership, through ETFs, in a firm and the firm’s stock price crash risk. This relationship strengthens further after the introduction of the Stewardship Code due to improved corporate governance.

Does engagement by large asset managers enhance governance of target firms?

We examine the motivations for and effects of institutional investor engagements in Ja-pan using proprietary data of three large asset managers from 2017 to 2019, when demand for responsible investment spiked in response to the revised Stewardship Code of 2017. Our statistical analysis of over 3000 engagement datasets reveals that investors engage with firms with poor governance when they have high stakes in the firms. Further, target firms improve governance and financial performance in the post-engagement period. Thus, in Japan, where historically, investors have not been active in engagement activities, investor engagement can be effective under an appropriate regulatory environment.

International best practice and a revised Code for Responsible Investing in South Africa

The much anticipated Second Code for Responsible Investing in South Africa (‘CRISA 2’) was published in September 2022. This article explores the evolution of the soft-law environment in which the code operates and reaches the conclusion that the revision was both timely and necessary. A comparison between CRISA 2 and recent trends in investor stewardship codes and regulation shows that CRISA 2 has kept pace in some respects but still lags in others. The move to ‘apply and explain’ falls in line with King IV and the approach of the UK Stewardship Code 2020. The extension of its application to all investment types rather than solely shares is an improvement. The code retains its focus on responsible investment — an aspect only recently adopted internationally in comparative codes — but has opted not to shift to sustainability language despite contemplating this approach in the draft. This may have been a missed opportunity. Aspects that could improve include considering engagement outside of voting; more express duties for service providers, including proxy advisors; the need to ascertain client and beneficiary needs; and more accessible language. Annual reporting and oversight remain with an industry body, which makes greater reporting doubtful.

A Study on the relevance of corporate performance before and after the introduction of the Stewardship Code

A Study on the relevance of corporate performance before and after the introduction of the Stewardship Code

Debtholder Stewardship

Debtholder stewardship refers to the involvement of corporate creditors in a firm's governance framework with the aim of improving corporate decision‐making. This article develops the theory of debtholder stewardship by identifying the mechanisms of debtholder influence, assessing their effectiveness in modern capital markets, and outlining the implications of this analysis for investor stewardship and regulatory efforts to support it. The impetus of this study is the expansion of the UK Stewardship Code across a broader range of asset classes, stewardship activities, and topics. The code has moved away from the traditional focus on shareholders by adding investors in other assets to the list of the stewards of corporate activities. Also, the revised concept of stewardship covers broader topics, including environmental, social, and governance (ESG) factors. But our understanding of debtholder stewardship, especially on sustainability matters, is inadequate. This article explains whether corporate creditors, both public and private, can promote responsible business practices through the stewardship of borrowers.

The Effects of Shareholding of the National Pension Fund on Environmental, Social, Governance, and Financial Performance: Evidence from the Korean Manufacturing Industry

With the growing number of environmental, social, and governance (ESG) problems, many companies have begun to implement more sustainable business practices. In the midst of this change, institutional shareholders declare and adopt socially responsible investment procedures, which is a way of engaging in investor activism. Despite the growing interest in investor activism following the introduction of the stewardship code, little attention has been paid to how socially responsible investment practices of institutional investors affect the non-financial value of the pillars of environmental, social, and governance as well as financial performance, including short-term accounting (ROE, ROA) and long-term market performance (Tobin q). The current study examines whether the national pension fund (NPF), the world’s third-largest Korean pension fund, can increase the ESG performance of investee firms in addition to accounting and market performance through institutional investors’ shareholding. This study, by applying path analysis, attempts to explore the relationship between the NPF’s socially responsible investing, ESG, and the financial performance of the investee firms. This research offers evidence that ESG performance acts as a moderator or a mediator between NPF’s shareholding and financial performance.

The effect of implementation of the Stewardship Code on nonprofessional investors’ judgment and decision-making

ABSTRACT Since 2010, the Stewardship Code (SC) or similar regulations have been introduced in many countries in order to enhance the quality of institutional investors’ engagement and to improve long-term firm value. Although the effectiveness of the SC has been the subject of ongoing controversy in prior anecdotal or legal studies, there has been little empirical evidence regarding the effects of these policies due to the relatively recent adoption of such codes worldwide. Accordingly, the purpose of this article is to investigate how capital market participants perceive and evaluate the implementation of the SC. Specifically, we examine how SC implementation affects nonprofessional investors’ judgment and decision-making on an investee firm. Based on the results of an experiment with nonprofessional investors, we show that the implementation of the SC may negatively impact nonprofessional investors’ assessments of the firm, contrary to the intended purpose of SC adoption. This study provides timely implications for the future operation and development of the stewardship policies recently adopted in many countries.