Research on the Governance Role of Institutional Investors in Listed Companies Based on Panel Data Analysis

The expropriation of minority shareholders by controlling shareholders is the central agency problem in listed Chinese companies. There has been an explosive development of institutional investors in China recent years but the governance role of institutional shareholders is controversial. This paper investigated the role of institutional shareholders in mitigating agency problem by testing the impact of mutual funds´ ownership on firm performance, using a sample for the period of 2004-2006. We find that equity ownership by mutual funds have positive effects on firm performance. The result is robust to two mainly measures of firm performance. Our finding suggests that institutional investors play a beneficial role in corporate governance and eventually sustainable development of listed companies.