...invest as well as institutional investors. Prior to development in capital markets, individual investors used to make their own investment decisions. But all these are changed now as individual investors have been replaced by institutional investors. This is also known as shareholding. Institutional investors play a very enviable role in corporate governance since the primary responsibility lies in side the board room, with the top management not with people and system imposed from outside. Looking at Board of Directors and investors, investors are seen as “sources of finance” or “partners in the enterprise”. This means that shareholders are seen as faceless, financial resource whose trust may be limited and need for checks and balances real? Or are they part of the business? Companies do take advice and guidance from their institutional shareholder in domestic and foreign business growth decisions (Stuffman 2008). This takes us to Hermes Fund Management, an institutional investment Corporation, which plays a strategic role in the activities of Total and Premier Oil. Total and Premier Oil has sought assistance from Hermes in managing business concern in Burma. This case study will show how trusted are Directors bearing in mind the interest or the shareholders. Shareholders are in turn given consideration and the respect for their membership in merit. Institutional Investors and Corporate Social Responsibility: As earlier stated, institutional investors are organizations...
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...Ownership and Disclosure A Review of Literature By BADRU Bazeet and Mousa Sharaf Adin Hezam Abstract This is a review of various literatures on ownership and disclosure which has been carried out by various researchers in different countries. So far majorities of the researchers shows that the extent of corporate disclosure is negatively associated with a higher management of ownership structure and the extent of corporate voluntary disclosures is positively related with a higher institutional ownership structure. But findings also show that the negative relationship is weaker if the firm has a higher proportion of independent non- executive directors. Introduction Ownership Structure is a mechanism that aligns the interest of Shareholders and Managers. Corporate governace is the capstone of the activities that can reduce agency costs. Corporate mangers disclosure policies are influenced by firm’s ownership and governance on the level of various types of information disclosure. This is a summary of literature review on ownership structure and corporate disclosure. Studies have shown that ownership structure can be state, legal, managerial and block holder depending on the countries and cultural environment. Blockholder ownership is the percentage of shares held by substancial shareholders( that is shareholdings of 5% or more). Jensen and Meckling (1976) argue that substancial shareholders are expected to have both greater power and incentives to monitor management, as...
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...Institutional investors are important in today’s business world because they have such a great influence on the cash flow surrounding all businesses. In a quick example to explain their importance, consider your 401k plan. I would much rather have my money trusted with an institutional investor than an individual investor, or worse, myself. That is a disaster waiting to happen. Institutional investors do this all day, every day. There is always hype from certain people concerning this profession, but I believe it’s mostly due to their lack of knowledge in the manner. It’s not fair to criticize something that you don’t completely understand. Institutional investors hold a high advantage when it comes to moving around the architecture of corporate policy. Reason being is because they hold a high ownership of stock (Varma, 2001). Owning this high amount of stock gives them the upper hand. They are capable of voting power, and much more. They also hold somewhat of a position of superiority when it comes to attaining information. This is an additional way that they are of great importance to the business world. They are able to actively oversee and supervise a company’s managers (Varma, 2001). I almost like to view this as a discreet check and balance process for firms. Lastly, one of the most important aspects of the institutional investor’s position is to ensure good business ethics. This brings back the comment I made earlier about the checks and balances process. Institutional...
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...Hermes Fund Management Dr. Okan Geray 1. Is the role of institutional investors to influence the strategy of companies in which they invest? Yes, they are influence on the strategy for the company * Institutional investors are in a unique position to exercise influence over companies and to hold them accountable for good governance. Given the typically significant stake they hold, they have the ability to demand meetings with the senior management of companies, challenge them on issues of concern, discuss strategies for achieving the companies’ goals and objectives and be the leading voice of shareholders in demanding corrective action when wrongdoing occurs. * Thus institutional investors have a critical and proactive role to play in the governance of companies. They have better access to information and possess the resources to build the necessary monitoring Capabilities. Given their unique position of influence, there is a need to priorities their leadership role in governance. * Institutional investors are professional investors who act on behalf of beneficiaries, such as individual Savers or pension fund members, the categories of institutional investors are wide and can include Collective investment vehicles, which pool the savings of many, and licensed fund managers to whom these funds are allocated. * Hermes is a UK independent fund manager investing approximately £36 billion on behalf of over 100 clients, including pension funds, insurance...
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...dominant driver. Acknowledging the importance of momentum, the current study explores whether and how REIT return patterns are linked to the underlying characteristics of the REITs themselves, in the manner of Daniel and Titman’s (Journal of Finance 52(1):1–33, 1997, Journal of Portfolio Management 24(4):24–33, 1998) characteristics model. Over the period 1993 through 2009, we find that after controlling for momentum, book-tomarket, institutional ownership, and illiquidity are all strongly associated with REIT returns while size and analyst coverage are not. We further extend prior research by examining the influence of changes in interest rate cycles on REIT returns, and find that the characteristic-return relationships are heavily influenced by interest rates. Keywords Real Estate Investment Trusts (REIT) . Return momentum . Characteristics models . Factor models . Monetary policy Introduction REITs as an asset class have become an increasingly important part of well diversified portfolios for both individual and institutional investors. Although REITs are very different from non-REIT equities in many ways, it has been shown that REIT and non-REIT equity returns have striking similarities. For example, both Chui et al. P. R. Goebel (*) : D. M. Harrison : J. M. Mercer Rawls College of Business, Texas Tech University, Lubbock, TX 79409-2101, USA e-mail: paul.goebel@ttu.edu D. M. Harrison e-mail: david.m.harrison@ttu.edu J. M....
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...fixed effect model. As textile sector is the largest manufacturing sector in Pakistan and having diversified financial characteristics, however, there exists a gap whether textile sector’s ownership and capital structure relationship matches with other manufacturing sectors or not. Current study tries to fill this gap. The results indicate that in textile sector, no significant relationship exists between ownership concentration and capital structure whereas a significant negative relationship is found between these two variables in case of non-textile firms in Pakistan. However, institutional ownership variable was found to be non-significant in both textile and non-textile sectors. Other control variables were found to have the results as hypothesized. Period of study used in this study is 2006-2009 and sample comprises of KSE listed firms. Keywords: Ownership concentration, capital structure, institutional shareholding. INTRODUCTION The capital structure refers to the optimal mix of debt and equity financing structure used by a firm to support its financing needs. Literature supports the notion that an optimal capital structure can have a positive...
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...Governance SCGOP Contents Foreword 3 1 The mission of the Foundation for Corporate Governance Research for Pension Funds and the purpose of this manual 5 2 Corporate governance in practice in the Netherlands 7 3 Basic principles of corporate governance 11 4 Corporate governance and performance 14 5 Institutional investors and corporate governance 16 6 Formulation of a voting policy 19 7 2 The exercise of voting rights 23 8 Reporting on the implementation of the voting policy and voting behaviour 26 9 Pension fund governance 27 10 Socially responsible investing 28 11 About SCGOP 30 Appendix: Recommendations on Executive Remuneration 32 Foreword Pension funds strive to protect the benefits of their members as effectively as possible from the consequences of inflation. They therefore invest part of their assets in shares. But the accounting scandals over the past few years have severely damaged investors’ confidence in shares. Rebuilding this trust is now a high priority everywhere. Pension funds and other institutional investors are expected to contribute to this rebuilding process. In the Dutch Corporate Governance Code presented by the Tabaksblat Committee on 9 December 2003, the role of the shareholders is described as follows: "The general meeting of shareholders should be able to exert such influence on the policy of the executive board and the supervisory board...
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...Institutional holding and market friction Ping-Wen Sun Louisiana State University psun1@lsu.edu Abstract This study investigates the relationship between the institutional holding and the stock’s market friction measure. According to Sun’s (2007) findings, I use Hou and Moskowitz’s (2005) price delay measure (D1) and Liu’s (2006) liquidity measure (LM12) to proxy for a stock’s market friction. I find that a higher total institutional holding tends to decrease a stock’s price delay measure, but institutional holding exhibits a U-shaped relationship with a stock’s LM12 measure. However, as the number of institutions increases, the stock’s market friction decreases. In terms of different types of institutional holdings, higher total block holding or higher top five institutional holding of a stock increases a stock’s market friction level. Furthermore, in contrast to Agarwal’s (2007) findings, higher independent long term institutional holding and risk averse institutional holding tends to decrease a stock’s market friction level. Institutional holding and market friction Abstract This study investigates the relationship between the institutional holding and the stock’s market friction measure. According to Sun’s (2007) findings, I use Hou and Moskowitz’s (2005) price delay measure (D1) and Liu’s (2006) liquidity measure (LM12) to proxy for a stock’s market friction. I find that a higher total institutional holding tends to decrease a stock’s price delay measure, but institutional...
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...distinction as the largest bankruptcy filing in U.S. history. The events surrounding this history-making occurrence provide an important opportunity to examine the repercussions for WorldCom’s stakeholders. We especially focus on the valuation effects of the WorldCom failure on exposed financial institutions for their important monitoring roles as institutional investors and creditors. Despite the heightened uncertainty facing investors during this period, we find that the market is remarkably efficient in distinguishing among the various types of stakeholders. In particular, institutional investors and creditors are largely unaffected by the events, which is expected based on the benefit of diversification. In contrast, large and key competitors are adversely affected by the events, which may be attributed to scrutiny of rivals that are perceived to be facing similar problems. Furthermore, for large and key competitors, these results indicate that contagion effects dominate competitive effects. © 2004 Published by Board of Trustees of the University of Illinois. JEL classification: G33; G14 Keywords: WorldCom; Bankruptcy; Contagion; Institutional investors; Creditors;...
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...Executive Summary This memorandum addresses some of the key issues with Edward Jones, which includes the lack of an online presence, possible cannibalization from larger firms, and the inability to manage funds from institutional investors. I conclude that the most effective of all of the theorized strategies would be a combination of Edward Jones’ original business model with an online platform. This plan would allow Edward Jones to stay true to its fundamentals, as well as attract new clientele and provide better service to its existing clients. Introduction Edward Jones has become the fourth largest brokerage firm in the United States. By holding on to a fundamental business strategy based on the core concepts of close client relationship and long-term investment focus, Edward Jones was able to offer excellent service and performance. However, with the industry rapidly changing, Edward Jones must evaluate its core values to sustain its competitive advantage but in a manner that will allow them to expand its services, and continue to compete with the top players in the industry. Key Issues and Problems When observing Edward Jones Financial, I found three critical issues and problems with the firm. Edward Jones built its business model around creating an environment that would allow entrepreneurs to thrive and run their own businesses to a certain extent. This is what originally led to Edward Jones’ success when the company first started; however, it is also the catalyst...
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...DISSERTATION PROPOSAL The Impact of Foreign Share Ownership on Financial Performance in Australia Word Count: 2,696 Table of Contents 1. Introduction ........................................................................................................................ 3 2. Literature Review ............................................................................................................... 5 2.1 2.2 3. 4. Corporate Governance in Australia ............................................................................. 5 Ownership Structure and Financial Performance........................................................ 6 Hypothesis .......................................................................................................................... 8 Methodology....................................................................................................................... 8 4.1 4.2 Model Design .............................................................................................................. 9 Sample ....................................................................................................................... 10 5. 6. References ........................................................................................................................ 11 Appendix .......................................................................................................................... 14 6.1 6.2 Structure .................
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...A review of corporate governance in UK banks and other financial industry entities: the role of institutional shareholders Robert A. G. Monks Robert A. G. Monks, in his article ‘A review of corporate governance in UK banks and other financial industry entities: the role of institutional shareholders’, states that the problem with the British and American corporate governance system is that the majority of the shareholders, both institutional and individual, do not act as owners. The aim of this article is to determine why there is a lack of commitment among the majority of the shareholders and to suggest some measures in order to encourage them to have a more active role in the companies they own. In the first section of the article Monks observes that 30 per cent of the U.S. and U.K. shareholders invest in index mode and 20 per cent, based on mathematical-based algorithms. In both these cases the rulings are made by ‘mechanistic formulae’ with no human decision-making being present. Another 30 per cent rely on their ‘friendly broker’, meaning that only 20 per cent of the shareholders are actively involved in their portfolio companies and are prepared, if necessary, to take steps to ensure that flaws in the governance, strategy or execution by managers are properly addressed. Moreover, the author notes that the number of these ‘intrinsic investors’ (such described by McKinsey, the premier consulting firm for corporate management) may be weakened because of the ‘dirty...
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...Corporate Governance This article discusses several theories, practices, themes and barriers in order to raise issues that might move corporate governance research forward, while at the same time providing a way to showcase cutting-edge research models and theories. Corporate governance mechanisms provide shareholders some assurance that managers will strive to achieve outcomes that are in the shareholders’ interests. Shareholders have both internal and external governance mechanisms to help bring the interests of managers in line with their own. Internal: an effectively structured board, compensation contracts that encourage a shareholder orientation, and concentrated ownership holdings that lead to active monitoring of executives. External: the market for corporate control. A multi-theoretic approach to corporate governance is essential. Researchers face a considerable challenge in determining those settings that best fit the assumptions in a given theory. Agency Theory Agency theory is the overwhelmingly dominant theoretical perspective applied in corporate governance studies. The assumption given in the agency theory is that those managers are self-interested, and a context in which those managers do not bear the full wealth effects of their decisions. The popularity of agency theory is likely due to two factors: first, it is an extremely simple theory, in which large corporations are reduced to tow participants—managers and shareholders---and the interests of each...
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...Executive Summary The report captures the role of institutional investors in corporate governance. The relationship that exists between an institutional investor and a public company forms the experimental setting of the report. The government exists as the regulating authority for the different players in the market, however, the players at times deviate from the blueprint set out by the regulating authority because of the changing circumstances. (Drucker 2011, p. 107). The report analyses the different postures that an institutional investor assumes, depending on the situation at hand. The report also examines the reasons behind activist investing and establishes that an institutional investor is quite ambitious in her quest. The reason behind this is the high expectations of the contributors who have entrusted the institution with their funds. The report goes further to apply its own finding in analyzing the relationship between Hermes and Total and arrives at the conclusion that the former should go ahead in pressuring the latter to offer a level of accountability that reflects their expectations. In a nutshell, the report proposes that an institutional investor should be actively involved in the strategy process of the company that they invest in (Drucker 2011, p. 107). Table of Contents Executive Summary 1 Summary of recommendations 3 Introduction and brief history 4 Strategic audit 5 Consultants report: Equipment 7 Management and planning 7 Consultant's...
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...AGENDA FOR CORPORATE GOVENANC Agenda for corporate governance reforms The need for corporate governance reforms in India is call of the hour as scams have become almost as an annual feature ever since we had liberalisation from 1991. Just from last 4-5 days we had been hearing about yet another alleged fraud involving thousands of crores by Kolkata-based Saradha group which may be a case of misuse/laundering by money generated by duping of lakhs of investors & public at large by Saradha group through their chit-fund and other money-pooling activities in West Bengal Capital market regulator SEBI has already passed an order against one group entity, Saradha Realty India, asking it to wind up all collective investment schemes and refund the money collected from investors. Besides, SEBI is also probing at least ten other Saradha entities for raising funds without the regulator’s approval. But question arises how come SEBI ,IT deptt ,Ministry of Corporate affairs and other enforcement agencies having so many guidelines & so called checks & balances allowed it to happen . How can we enact laws like Chit Fund Act 1982 which may have so many loose ends .This is not one of its kind case in India in recent past . We had the Harshad Mehta Scam, Ketan Parikh Scam, UTI Scam, Vanishing Company Scam, Bhansali Scam ,2G scam ,Coal scam and the story goes on this front unabated. To cut a long story short there is immediate need to revitalize in-house system of...
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