Role of Institutional Investors for Corporate Governance in China

This paper explores the relationship between institutional ownership and corporate governance in China. In order to study the role of institutional investors in corporate governance, the author first studies the relation between institutional ownership and corporate performance. The empirical results show that institutional ownership is not only positively correlated with current corporate performance, but also with last periods' corporate performance. In a certain extent, it confirms the arguments that institutional investors play a fiduciary role in corporate governance. The result also finds the institutional ownership is positively correlated with the next periods' corporate performance. The author further investigates the relationship between institutional ownership and corporate governance. The empirical results show that institutional investors can improve corporate governance. The findings are consistent with the view that institutional investors play a positive governance role than merely play a fiduciary role for corporate governance in China.