The Effects of Institutional Ownership On Corporate Governance and Performance: An Empirical Assessment in Hong Kong

Zusammenfassung

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Using 433 publicly listed companies in Hong Kong, this study analyses how the institutional ownership of firms affects their corporate governance and performance. The results indicate that institutional ownership exerts a direct and significant influence on corporate governance in such areas as board composition, CEO duality, leadership diversity, and ownership concentration. The results also show that institutional ownership has only an indirect effect on firm performance, such as corporate profitability.

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The Effects of Institutional Ownership On Corporate Governance and Performance: An Empirical Assessment in Hong Kong

Introduction

Research has documented that changes in corporate ownership can trigger changes in corporate governance structure (Davis/Thompson 1994, Li 1994) and in firm behavior and performance (Dalton/Daily/Ellstrand/Johnson 1998). Some studies have suggested that increasing institutional ownership has an effect on corporate governance and corporate performance (Baysinger/Hoskisson 1990, Stewart 1993). However, despite these studies, some of the effects of institutional ownership on corporate governance and performance remain unclear. On the one hand there are some discrepancies in the empirical findings, and on the other hand few empirical studies have been conducted in an Eastern business context, although many Western institutional investors hold shares in East Asian firms. Therefore, the question remains as to whether East Asian business contexts influence the relations between institutional ownership, corporate governance, and corporate performance, and many authors have called for more empirical studies with non-U.S. data on these relations (Barkema/Gomez-Mejia 1998, Barkema/Geroski/Schwalbach 1997). Research has also shown that some dimensions of the business context, such as the legal environment and industry regulations, may influence corporate governance and corporate performance (Luoma/Goodstein 1999). Therefore, it would be of interest to test these relations in an East Asian Chinese business context, which differs in many dimensions from that of the West. This paper reports the testing of the aforementioned relations. Based on a brief review of the rel...

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