Corporate governance, institutional investors and firm performance: A comparative study of South Africa and China

Zhang, Qiaowen (2016-12)

Thesis (DPhil)--Stellenbosch University, 2016.

Thesis

ENGLISH SUMMARY : As growing role players in corporate governance, institutional investors are regulated and guided by a series of rules, according to which they are required to address their fiduciary duty by protecting the interests of their clients as well as a diverse group of stakeholders. This study explores whether institutional investors comply with this fiduciary duty through an investigation of their prudent stockholding behaviour and their impact on improved corporate governance. The first empirical chapter assesses what types of firms institutional investors tend to invest in. The impact of institutional investors on corporate governance has been considered from both financial and non-financial perspectives in prior studies. The financial perspective includes institutional investors’ impact on financial performance and on corporate operations (earnings management in this study). These aspects are discussed in Chapters 3 and 4 respectively. The non-financial perspective is represented by the impact of institutional investors on corporate environmental, social and governance (ESG) performance, which is studied in Chapter 5. South Africa and China, two major emerging markets where institutional investors and corporate governance have experienced considerable development in recent years, were employed as cases for this study. The selected sample came from South African companies listed on the Johannesburg Stock Exchange (JSE), observed over the period 2010 to 2013, and Chinese companies listed on either the Shanghai Stock Exchange (SSE) or the Shenzhen Stock Exchange (SZSE), observed over the period 2008 to 2013. After taking account of endogeneity problems and by using pooled ordinary least squares (OLS), fixed effect (FE), two-stage least squares (2SLS) and system generalized method of moments (Sys-GMM) estimations, this study observed that similarities and differences co-exist in terms of institutional investors’ stockholding behaviour and their relationship with improved corporate governance between South Africa and China, between pressure-insensitive and pressure-sensitive institutional investors, and between passive and non-passive institutional investors. More specifically, it was found that institutional investors overall in both South Africa and China are not always prudent in terms of their stockholding behaviour; although institutional ownership was observed to have a significant relationship with improved corporate financial performance and earnings management alleviation, it was insignificantly associated with corporate ESG performance. Institutional investors are therefore considered more conventional than socially responsible, and seem unlikely to accept suboptimal financial performance to pursue ESG aims. It should be noted that institutional investors seem effective in promoting corporate governance disclosure in South Africa, but this phenomenon was not detected in China. By disaggregating institutional investors into specific types, this study found that pressure-insensitive institutional investors, compared to their pressure-sensitive counterparts, appear to be more effective in monitoring, with a resulting advancement in corporate financial performance. Additionally, passive institutional investors in both South Africa and China were noted to show less preference towards past financial performance when they select stocks; in China, however, they exhibit a stronger association with improved corporate financial performance after the investment relationship has been built than their non-passive peers.

AFRIKAANSE OPSOMMING : Institusionele beleggers, wat deesdae ’n al hoe groter rol in korporatiewe beheer vervul, word deur verskeie reëls gelei en gerig om hulle fidusiêre plig na te kom, naamlik om die belange van hulle kliënte sowel as van ’n diverse groep belanghebbendes te beskerm. Hierdie navorsing ondersoek of institusionele beleggers wel hierdie vertrouensplig nakom deur hulle omsigtige aandeelhoudingsgedrag en hulle impak op beter korporatiewe beheer te bestudeer. Die eerste empiriese hoofstuk bepaal in watter soorte firmas institusionele beleggers geneig is om te belê. Vorige studies het die impak van institusionele beleggers op korporatiewe beheer uit ’n finansiële sowel as ’n nie-finansiële hoek beskou. Eersgenoemde sluit in institusionele beleggers se impak op finansiële prestasie en korporatiewe werksaamhede (“verdienstebestuur” in hierdie studie). Hierdie aspekte word in hoofstuk 3 en 4 onderskeidelik bespreek. Die nie-finansiële beskouing handel oor institusionele beleggers se impak op korporatiewe omgewings-, maatskaplike en beheer- (“ESG”-)prestasie, wat in hoofstuk 5 ondersoek word. Suid-Afrika en China, twee belangrike ontluikende markte waar institusionele beleggers en korporatiewe beheer die afgelope paar jaar beduidend ontwikkel het, is as gevallestudies gebruik. Die gekose steekproef kom uit Suid-Afrikaanse maatskappye wat op die Johannesburgse Effektebeurs (JEB) genoteer is en oor die tydperk 2010 tot 2013 waargeneem is, sowel as Chinese maatskappye wat op hetsy die Shanghai-effektebeurs (SEB) of die Shenzhen-effektebeurs (SZEB) genoteer is en oor die tydperk 2008 tot 2013 waargeneem is. Ná inagneming van endogeniteitsprobleme en met behulp van momenteberamingsmetodes soos saamgevoegde gewone kleinste kwadrate (“OLS”), vaste effek (“FE”), tweestadiumkleinste kwadrate (“2SLS”) en stelselveralgemening (“Sys-GMM”), toon hierdie studie dat, wat institusionele beleggers se aandeelhoudingsgedrag en verband met beter korporatiewe beheer betref, daar ooreenkomste én verskille bestaan tussen Suid- Afrika en China, tussen druk-onsensitiewe en druksensitiewe institusionele beleggers, en tussen passiewe en nie-passiewe institusionele beleggers. In die besonder word daar bevind dat institusionele beleggers in Suid-Afrika én China oor die algemeen nie altyd omsigtig is in hulle aandeelhoudingsgedrag nie; waarnemings toon ’n beduidende verband met beter korporatiewe finansiële prestasie en laer verdienstebestuur, maar ’n onbeduidende verband met korporatiewe ESGprestasie. Institusionele beleggers word dus as meer konvensioneel as maatskaplik verantwoordelik beskou, en sal waarskynlik nie suboptimale finansiële prestasie aanvaar om ESG-doelwitte na te jaag nie. ’n Interessante bevinding is dat institusionele beleggers in Suid-Afrika doeltreffend blyk te wees in die bevordering van openbaarmaking van korporatiewe beheer, terwyl hierdie verskynsel nie in China opgemerk word nie. Deur institusionele beleggers in bepaalde tipes in te deel, bevind die studie dat drukonsensitiewe institusionele beleggers klaarblyklik meer doeltreffend as hulle druksensitiewe eweknieë moniteer, wat korporatiewe finansiële prestasie bevorder. Daarbenewens toon passiewe institusionele beleggers in sowel Suid-Afrika as China minder voorkeur vir vorige finansiële prestasie wanneer hulle aandele kies; in China blyk hulle egter ’n sterker invloed te hê op beter korporatiewe finansiële prestasie as hulle nie-passiewe eweknieë nadat die beleggingsverhouding gevestig is.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/100105
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