What Is an Institutional Investor?

An institutional investor refers to a legal person institution that specializes in securities investment activities with its own funds or funds raised from the dispersed public. Such investors generally have a large amount of investment funds and a strong ability to collect and analyze information. Because these investment activities have a greater impact on the market, institutional investors pay more attention to the security of assets and can fully diversify investment risks. According to the nature of its subject, institutional investors can be divided into corporate legal persons, financial institutions, governments and their institutions. The corporate legal person is the transaction subject in the securities market and plays the dual role of both a supplier of funds and a demander of funds. There are two main purposes for corporate legal persons to invest: one is to add value to assets and the other is to participate in management. Such investments are generally long-term investments, with large transaction volumes, but relatively stable. ^[1]

corporate investor

(Securities Investment Corporation)

Institutional investors

Although institutional investors are a common term in the capital market, there is very little theoretical definition of this term.

There are two main authoritative or comprehensive statements abroad: First, according to the definition of the New Palgrave Dictionary of Currency and Finance, institutional investors are professional financial institutions that manage long-term savings in many western countries. These institutions manage pension funds,

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China should accelerate the development of institutional investors in the following areas:

Introduce market-ready and mature fund products. China has allowed qualified foreign institutional investors to enter the market, and accordingly needs to introduce a corresponding system for qualified domestic institutional investors to enter the international market, namely QD. The principle of QD is generally the same as that of QF.

Institutional investors and

I. The role of institutional investors in the expansion of the stock market and the restructuring of state-owned enterprises

China's securities market has assumed responsibility for serving state-owned enterprises since the beginning of the pilot. The role of the securities market in the reform of state-owned enterprises is mainly in the following areas:

(1) State-owned enterprises have obtained direct financing channels through transformation into listed companies, which can speed up the pace of technological transformation of enterprises and create conditions for the expansion of enterprises and effective participation in international competition. The listing of a company is conducive to the company becoming a legal entity and a market competition subject that operates independently, is responsible for its own profits and losses, self-development, and self-regulation;

(2) State-owned enterprises can introduce the operating mechanism and operating environment of the modern enterprise system by listing on the stock market to standardize the operation of the enterprise. After the listing of the company, the information disclosure has been strengthened to increase the transparency of the company. Under the supervision and restriction of all parties, the company's incentive and restraint mechanism has been continuously strengthened. The securities market has provided a broad stage for the reorganization of state-owned enterprises. Companies, divestiture of non-performing assets, re-incorporate subsidiaries or some good assets before listing other assets into listed companies, and other restructuring activities to achieve the survival of the fittest, optimize the organizational structure of the enterprise, improve the development mechanism of the enterprise, and increase the company's ability to integrate So that the enterprise has embarked on the road of sustainable development;

(3) The securities market can also guide the flow of funds to increase the stock prices of some growing companies, thereby making it possible for such companies to expand their equity through the securities market. At the same time, it can also help some companies with poor performance and poor growth. The stock price fell, and it was difficult to raise funds again, so that it gradually disappeared or was reorganized.

Institutional investors are one of the main bodies of the securities market, so they can play an important role in the reform of state-owned enterprises and the expansion of the securities market. The role of institutional investors is both direct and indirect.

First, institutional investors play a direct role in corporate restructuring: state-owned enterprises must undergo shareholding system reform before listing. According to China's "Company Law", "Securities Law", "Interim Provisions on the Administration of Stock Issuance and Transaction Management" and other laws and administrative regulations According to the regulations, when an enterprise is reorganized into a company limited by shares and listed, an application for restructuring is required, an intermediary agency is selected, an enterprise restructuring and restructuring plan is formulated and implemented, an application for stock issuance and listing, an issuance and listing counseling, issuance of stocks, and a founding meeting are held. Apply for establishment registration, listing and trading in nine steps. Among them, the lead underwriter in the selection of intermediaries is a securities company among institutional investors. The steps of formulating and implementing a corporate restructuring, restructuring plan, issuance and listing counseling, and issuance of shares must also involve the participation of securities companies.

Secondly, institutional investors have played an indirect role in the expansion of the securities market: As the economic development relies on the securities market to deepen, the securities market will continue to expand. Whether the stock market can maintain stable development in the expansion, the key lies in whether the capital expansion can follow The pace of stock market expansion. For a long time, the lack of market liquidity has been a problem that plagued the trend of the secondary market in China's stock market. With the acceleration of the expansion of the stock market, especially after the listing of a large number of state-owned restructuring companies with large equity, the contradiction between the speed of capacity expansion and the relative lack of funds has become increasingly apparent. More and more prominent.

According to statistics, as of the end of 1999, the total market value of China s Shanghai and Shenzhen stock markets was 2.6 trillion yuan, and by the first half of 2000, it had reached 4.1 trillion yuan, an increase of more than 50% in the first half of the year. Under certain circumstances, a certain speed of capacity expansion has been maintained. Facing the rapid development of the market, if there is no new incremental capital entering the market, it will be difficult for the stock market to maintain its current position for a long time and continue to move higher. Institutional investors, through expert financial management and scale effects, are conducive to attracting some potential investment funds into the stock market, effectively expanding the supply channels of stock market funds, and promoting market activity and expansion. It is estimated that securities companies can increase their capital by about 40 billion yuan through capital increase, stock expansion and access to the lending market and equity mortgage financing; funds through the restructuring and expansion of existing investment funds, placement to insurance companies, and the creation of new varieties of open-end funds The expansion potential generated is about 50 billion yuan; three types of enterprises and other legal persons may add about 100 billion yuan to the stock market.

The successful issuance of stocks in the primary market requires a capacity and active secondary market. Without an active secondary market, stock issuance is difficult to complete. It is believed that investors who have experienced in 1994 and 1995 will have a sober mind. Recognition. Without a secondary market with capacity and a large amount of capital commitment, a large number of restructured state-owned enterprises would not be able to go public smoothly. The emergence of institutional investors will bring fundamental changes to China's securities market, which can promote the expansion and activeness of the secondary market, thereby enabling the issuance of the primary market to proceed smoothly. Large-scale restructuring can proceed smoothly.

Third, institutional investors have also played a significant role in establishing modern enterprise systems and realizing rational allocation of resources in state-owned enterprises. Institutional investors can use their advantages in management and talents to help companies build modern corporate systems, and they can also acquire control of the company through mergers and reorganizations, so as to reorganize the company and make the company comply with The dynamic modern enterprise required by the market economy has built a structural model that is more suitable for China's development in terms of internal organization.

The role of institutional investors in realizing resource allocation is more obvious. Through their own advantages in information grasp and information analysis, institutional investors find that valuable companies in the market make investments, which can increase the share prices of such companies. This type of enterprises provides conditions for expanding reproduction. The additional issue of information industry stocks on the Chinese securities market in 2000 fully proves this. In addition, institutional investors have acquired loss-making companies on the securities market, and then injected high-quality assets so that The reorganization and merger activities of enterprises that have been brought back to life have also played a role in achieving optimal allocation of resources and have also activated the market. These two behaviors fully reflect the role played by institutional investors in market capital allocation and shell resource reuse.

The 15th National Congress of the Communist Party of China proposed to accelerate the marketization of the national economy and focus on the development of the capital market. Continue to promote the reform of state-owned enterprises' shareholding systems, asset restructuring, capital operations, and asset securitization.

Prior to the 1990s, foreign studies have looked at the role of institutional investors as a whole. After Bushee (1998) systematically classifies institutional investors based on their trading behaviors in their doctoral dissertation, subsequent institutional investor research will take into account the heterogeneity of institutional investors, leading to the classification of institutional investors. keep appearing. The representative classifications are as follows:

(1) Transient institutional investors, quasi-indexing institutional investors, and dedicated institutional investors

This is proposed by Bushee (1998) on the basis of Baysingereta1. (1991). Based on the investment behavior of institutional investors, he constructed nine variables under three broad categories of indicators to classify institutional investors. The three broad categories of indicators include institutional investor concentration, portfolio turnover, and earnings sensitivity. The nine variables include: the average shareholding of an institutional investor, the shareholding of the institutional investor in the company's shareholding in the company, the sum of the shareholdings of the institutional investor's shareholding exceeding 5%, The logarithm of the squared shareholding ratio, the proportion of institutional investors holding shares for more than two years, the ratio of the absolute value of institutional investors' quarterly changes to the sum of institutional investor holdings, and the quarter of institutional holdings of companies The change between the amount of change and the company's quarterly earnings, the increase in the company's average shareholding and the change in the company's average shareholding, the change in the company's average shareholding, and the change in the company's positive shareholding The difference between the sum of the sum and the change in the shareholding ratio of the institutional investor with a negative earnings. For the nine variables describing the behavior of institutional investors, factor analysis was used to reduce these dimensions. Then use cluster analysis to get the above three types of institutional investors. Later, in Bushee's (2001) research, earnings sensitivity indicators were excluded, and only the two indicators of institutional investor concentration and portfolio turnover were considered. Institutional investors were also classified as transient, quasi-index, and focused. Institutional investors.

Kon (2007) borrowed from Bushee (2001) 's classification of institutional investors, and divided institutional investors into two types: short-term and long-term institutional investors. The short-term institutional investors correspond to the short-term in Bushee (2001). Long-term institutional investors correspond to quasi-index and mature institutional investors.

His research found that long-term institutional investors can effectively limit the company's manageable earnings management, which can reduce radical earnings management, while short-term institutions are not related to aggressive earnings management. In addition, Kon (2003) used Australian listed companies as a sample to test the relationship between aggressive earnings management and institutional investor holdings.

At the same time, Mongand Azkan (2008) examined the determinants of directors' income in listed companies in the UK, and divided institutional investors into long-term and short-term, and found that long-term institutional investors limit the company's board of directors' expenditures, thereby strengthening directors' expenses The degree of correlation between company performance.

(II) Pressure-sensitive and pressure-resistant institutional investors

Brickleyeta1. (1988) found that voting behavior is a function of the type of institutional investor. They differentiate institutional investors through a dichotomy, based on whether they have a business relationship or an investment contract with the company they invest in. This heterogeneity of institutional investors makes them very different in their ability, motivation and goals to participate in corporate governance. Among them, insurance companies and bank trusts generally have business relationships or wish to form business relationships with the companies they invest in. Due to potential conflicts of interest, they lack the motivation and ability to participate in corporate governance. ) Is considered a pressure-sensitive institutional investor, and public pension funds and the companies they invest in lack such a potential business relationship, so they have the enthusiasm to participate in corporate governance and are pressure-resistant institutional investors. An empirical study conducted by Shermaneta1. (1988) analyzed the strategic decisions of different institutional investors and companies. Each institutional investor is divided into four categories: pension funds, mutual funds, insurance companies, and banks. The study established a correlation model between each type of institutional shareholding and capital expenditure, R & D investment, and advertising expenses. The most important result of this study is to show that pension funds and mutual funds have very different investment strategies. This difference in investment strategies has, to a certain extent, led to differences in the strategic investments such as capital expenditures and R & D investment of the invested companies.

Cometteta1. (2007) When examining the relationship between institutional investor holdings and the company's operating performance, it was found that the company's operating cash flow was significantly positively related to the institutional shareholding ratio and the number of holding institutions, but this relationship was limited to Independent institutional investors (ie, pressure-resistant institutional investors in the Bricklyeta1. (1988) classification) in business transactions exist in a subsample.

(3) Classify companies held by institutional investors according to the level of institutional shareholding and the number of institutions

This classification is based on the effect of institutional investors' shareholding. The development of institutional investors and the trend of institutionalization of shareholdings have caused the proportion of institutional investors' shares in listed companies to continue to rise, and thus have a certain impact on the choice of institutional investor behavior strategies.

UmaandDavid (2006) research found that the institutional shareholding ratio has a positive relationship with the information quality of the company's financial report, but the concentration of the institutional shareholding exceeds a certain ratio will have a negative effect on the quality of the financial report, which indicates that institutional investment The effect of shareholder holdings on the quality of a company's financial reports is an inverted U-shaped relationship. In the research of GillanandStarks (2000), according to the level of institutional investors' shareholding, the research sample was divided into high-shareholding companies and low-shareholding companies. In the study of Sias (2001), the number of holding institutions in a company is considered to be a better indicator of the role of institutional investors than the proportion of institutional holdings. In his research, the number of holding institutions was used to divide the research sample.

(IV) Independent long-term high-shareholding institutional investors and others

All institutional investors will conduct a comparative analysis of costs and benefits when they face whether to exercise their supervisory responsibilities. Cheneta1. (2007) All institutional investors will compare the costs and benefits when faced with whether to exercise their supervisory responsibilities. Their research divides institutional investors into independent long-term investors while considering the costs and benefits of their supervision. Institutional investors and others. For the division of institutional investors, three main indicators are considered: (1) Positions held by institutional investors: the sum of the company's top five institutional investors' shareholdings, and the maximum shareholding of an institutional investor's shares The sum of the proportion of shares held by large institutional investors (holding more than 5%). (2) Independence of institutional investors: According to Bricklyeta1. (1988), David (1998) classified institutional investors into pressure-sensitive and pressure-insensitive based on the heterogeneity of the nature of institutional investors. Among them, the pressure-insensitive type is considered as an independent institutional investor. (3) Time of institutional shareholding: According to Bushee (2001), institutional investors are classified into short-term, quasi-index and dedicated institutional investors. Among them, short-term institutional investors are considered as short-term institutional investors, and quasi-index and focused investors are regarded as long-term institutional investors.

(5) Buying (entering) institutional investors, selling (exiting) institutional investors, and adjusting and holding institutional investors

Badrinathand Sunil (2002) used the trading behavior of 1,200 institutional investors in 8 years as a sample to break down institutional investors into three types of institutional investors: buy (entry), sell (exit), and adjust holding. It was found that the institutional investors who entered the market had obvious characteristics of inertia trading, but the institutional investors who appeared and adjusted their holdings were not inertia traders.

In the existing domestic research, most companies are limited to companies that are held by institutional investors according to their shareholdings or the number of institutions. For example, Weng Hongbo and Wu Shinong (2007) found that the higher the institutional investor's shareholding ratio, the less likely there is a "malicious cash distribution" of listed companies. Li Shanmin and Wang Caiping (2007) found that institutional investors can actively participate in corporate governance and affect the salary level of listed companies. Cao Yugui (2005) established the institutional investor income function based on the relationship between corporate governance benefits and governance costs revealed by the number of shares effect and the number of companies effect, using game theory to explore the influencing factors of institutional investors' participation in corporate governance as institutional investment The shareholding ratio of the investor, the number of governing companies, and the appreciation of the company's stock price after participating in corporate governance. Yin Chunhong and Cao Yugui (2006) believe that the motivation for institutional investors to actively participate in corporate governance mainly depends on the comparison of costs and benefits, and specifically depends on the institutional investor's shareholding ratio, shareholding time, and monitoring costs. Li Qingyuan (2003) conducted a general analysis of the mathematical model of institutional investors 'active participation in corporate governance, and concluded that whether institutional investors actively participate in corporate governance depends on the institutional investors' ownership of the company's equity, supervision costs, and risk appetite. Wang Qibo (2006), while establishing a theoretical model to study institutional investors 'participation in equity checks and balances, found that the corporate governance effect of institutional investors' participation is also affected by the ownership structure and the legal environment. At the same time, the collusion between institutional investors and major shareholders also exists. Wang Yuanyuan (2008) borrowed Bushee's (1998) classification of institutional investors to classify funds and study the relationship between different types of fund holdings and earnings management. However, its research found that the results of cluster analysis were unstable, and the sample was limited to funds, and the research interval was only two years. ^[3]

Under the current environment, institutional investors participating in financial derivative investments are mainly domestic securities firms . Compared with futures companies, institutional investors have two main advantages:

1. Strong funds. At present , most of the futures companies with strong capital strength in the industry are securities companies holding or holding shares. Institutional investors in securities firms have much stronger capital than futures companies.

2. The self-operated development of securities firms started earlier, and is superior to futures companies in terms of investment capacity and experience. However, institutional investors in securities firms are not as professional in investment in derivatives and their R & D capabilities as professional futures companies. At the same time , the funds of institutional investors are motivated by the pursuit of profits, and they prefer to invest in related products or markets. Their funds are highly liquid to participate in cross-product and cross-market transactions. The biggest advantage of futures companies is that they are familiar with the trading rules of derivative products and futures and options business, and have internal control systems and risk management systems for more special financial instruments such as financial derivatives.

It can be seen from the above that comprehensive futures companies will be the most ideal market makers in China's futures market. Compared with institutional investors, its advantage lies in professional investment and research and development capabilities.