The Role of Institutional Investors in Corporate Governance: An Empirical Study

302 Pages·2013·1.147 MB·English

by  Petra Nix, Jean Jinghan Chen (auth.)

The Role of Institutional Investors in Corporate Governance
The Role of Institutional
Investors in Corporate
Governance
An Empirical Study
Petra Nix
UniversityofAppliedSciencesandArtsofNorthwesternSwitzerland,Switzerland
and
Jean Jinghan Chen
SurreyBusinessSchool,UK
©PetraNixandJeanJinghanChen2013
Softcover reprint of the hardcover 1st edition 2013 978-1-137-32702-4
Allrightsreserved.Noreproduction,copyortransmissionofthis
publicationmaybemadewithoutwrittenpermission.
Noportionofthispublicationmaybereproduced,copiedortransmitted
savewithwrittenpermissionorinaccordancewiththeprovisionsofthe
Copyright,DesignsandPatentsAct1988,orunderthetermsofanylicence
permittinglimitedcopyingissuedbytheCopyrightLicensingAgency,
SaffronHouse,6–10KirbyStreet,LondonEC1N8TS.
Anypersonwhodoesanyunauthorizedactinrelationtothispublication
maybeliabletocriminalprosecutionandcivilclaimsfordamages.
Theauthorshaveassertedtheirrightstobeidentifiedastheauthorsofthis
workinaccordancewiththeCopyright,DesignsandPatentsAct1988.
Firstpublished2013by
PALGRAVEMACMILLAN
PalgraveMacmillanintheUKisanimprintofMacmillanPublishersLimited,
registeredinEngland,companynumber785998,ofHoundmills,Basingstoke,
HampshireRG216XS.
PalgraveMacmillanintheUSisadivisionofStMartin’sPressLLC,
175FifthAvenue,NewYork,NY10010.
PalgraveMacmillanistheglobalacademicimprintoftheabovecompanies
andhascompaniesandrepresentativesthroughouttheworld.
Palgrave®andMacmillan®areregisteredtrademarksintheUnitedStates,
theUnitedKingdom,Europeandothercountries.
ISBN 978-1-349-46012-0 ISBN 978-1-137-32703-1 (eBook)
DOI 10.1057/9781137327031
Thisbookisprintedonpapersuitableforrecyclingandmadefromfully
managedandsustainedforestsources.Logging,pulpingandmanufacturing
processesareexpectedtoconformtotheenvironmentalregulationsofthe
countryoforigin.
AcataloguerecordforthisbookisavailablefromtheBritishLibrary.
AcatalogrecordforthisbookisavailablefromtheLibraryofCongress.
Coverdesign:PETRANIXCorporateandFinancialCommunications
AG,Zurich
Contents
ListofFiguresandTables ix
Acknowledgements xv
ListofAbbreviations xvi
1 Introduction 1
1 Researchbackground 1
2 Corporategovernanceingeneral 3
3 CorporategovernanceinGermany 4
4 Institutionalinvestors 4
5 Frameworkofresearch 5
6 Objectivesofresearch 7
7 Limitations 8
8 Structure 8
2 FundamentalsofCorporateGovernance 10
1 Definitionsandscope 10
2 Corporategovernanceframeworks–atheoreticalreview 13
2.1 Principal–agencytheory 13
2.2 Stewardshiptheory 15
2.3 Stakeholdertheory 17
3 Developmentsinacademicresearch–
anempiricalreview 17
3.1 Developmentsofcorporategovernanceresearch
between2005and2009 18
3.2 Principal–agencytheory 21
3.3 Stewardshiptheory 22
3.4 Stakeholdertheory 22
3.5 Generalappreciationandcriticalevaluationofthe
theories 23
4 Trust 25
5 Boardstructuresandboardresponsibilities 28
5.1 One-tierandtwo-tiersystems 28
5.2 Responsibilities 30
6 Guidelinesofcorporategovernance 30
6.1 OECDguidelines 32
6.2 DowJonesSustainabilityIndex 33
6.3 Globalreportinginitiative 33
v
vi Contents
7 Countriesmatter 35
8 CorporategovernanceinGermany 37
8.1 Thedevelopment 37
8.2 TheGermansystem 41
8.3 Thestructureofownership 43
9 Institutionalinvestors 43
9.1 Definitionandclassification 43
9.2 Ownership,controlandrelationship 44
9.3 Roleandresponsibilities 48
10 Researchgaps 50
3 Methodology 52
1 Researchparadigms 52
1.1 Positivistapproach 52
1.2 Interpretativistapproach 53
1.3 Constructivistapproach 53
2 Researchmethods 54
2.1 Quantitativeresearch 55
2.2 Qualitativeresearch 55
3 Researchstrategyanddesign 56
3.1 Researchparadigm 56
3.2 Researchmethod 58
3.3 Researchprocess 59
3.4 Researchobjectiveandquestion 61
4 Researchmodelandvariables 63
5 Dataanalysisandinterpretation 66
5.1 Correlation 66
5.2 Groundedtheory 68
5.3 Datatypes 70
5.4 Pilottest 70
6 Datasampling 72
7 Exploratoryin-depthinterviews 73
8 Questionnaire 75
9 Reliabilityandvalidityofthemethodology 75
4 DescriptionofInterviewPartnersandCategories 77
1 Semi-structuredinterviews 77
1.1 Selectioncriteria 77
2 Profileofintervieweesandtheircompanies 78
3 Generalinformationabouttheparticipatingcompanies 81
4 Datacollectionprocessandprotocol 83
5 Dataanalysis 85
6 Validityandreliability 88
Contents vii
5 StudyResults 90
1 Generalpictureoftheresults 90
2 Thesixvariablesoftheresearchmodel 91
2.1 Boardoversight 91
2.2 Nomination 100
2.3 Identificationofweaknesses/improvementof
companyvalue 111
2.4 Recommendationstocompany 122
2.5 Inducingchangesincorporatestrategy 133
2.6 Executionofinstitutionalpower 144
3 Futureroleofinstitutionalinvestors 152
4 Relationshipwithinstitutionalinvestors 155
5 Variousstatisticalteststoexplorerelationships,
checkreliabilityandcomparegroups 165
5.1 Distributionoftheresults 165
5.2 Reliabilityoftheresearchmodel 166
5.3 Correlation 167
5.4 Differencesbetweenmembersofthesupervisory
boardandIROs 168
6 StudyFindingsandAnalysis 170
1 Theroleofinstitutionalinvestors–summarizedfindings 170
2 Theroleofinstitutionalinvestorsaccordingtoeachvariable 173
2.1 Boardoversight 173
2.2 Supervisoryboardnomination 175
2.3 Improvementofcompanyvalue 178
2.4 Recommendationstocompany 179
2.5 Inducingchangesincorporatestrategy 181
2.6 Exerciseofinstitutionalpower 182
3 Typeofinstitutionalinvestormatters 184
3.1 Addedvalueandunderstanding 184
3.2 Impactoncorporategovernance 185
4 ShareholderengagementinGerman
companies–someexamples 187
4.1 DeutscheBörseversusTCI/Atticus 188
4.2 Merckversusvariousinstitutionalinvestors 189
4.3 DemagCranesversusCevianCapital 189
4.4 HeidelbergerCement–failureofAGMapproval 189
4.5 InfineonversusHermes 189
5 Comparisonwiththeliterature 189
7 ConclusionsandImplications 193
1 Mainfindings 193
2 Contributionsofthisstudy 194
viii Contents
3 Policyandmanagerialimplicationofthisstudy 195
3.1 Measuresforinstitutionalinvestorstoengage
incorporategovernance 196
3.2 CriticismsandsolutionsregardingGerman
corporategovernance 199
3.3 Prerequisitesforimprovingcompanyvalue 201
3.4 Prerequisitesforinstitutionalinvestorstoinduce
changeandexercisepower 203
4 Limitationsofthestudyandfurtherresearchdirection 205
Appendix 206
Notes 269
References 270
Index 280
Figures and Tables
Figures
1.1 Conceptualoverviewandstructure 9
2.1 Corporategovernanceresearchinselectedacademic
journals,2005–2009 19
3.1 Researchprocess 59
3.2 Linkageofresearchquestion 61
3.3 Researchmodel:responsibilitiesofinstitutionalinvestors 62
3.4 Datagatheringprocess 74
4.1 Dataanalysisprocess 84
5.1 Towhatextentdoinstitutionalinvestorsensureeffective
supervisoryboardoversight? 92
5.2 Towhatextentdoinstitutionalinvestorsensureeffective
managementboardoversight? 93
5.3 Boardoversight–importantandtypicalmeasures 94
5.4 Institutionalinvestorsaddvaluetosupervisoryboard
oversight 96
5.5 Institutionalinvestorsaddvaluetomanagementboard
oversight 96
5.6 Howandwhyinstitutionalinvestorscanaddvalueto
supervisoryandmanagementboardoversight–advantages
anddisadvantages 97
5.7 Towhatextentdoinstitutionalinvestorsfocusonthe
compositionoftheSB?(general) 101
5.8 Towhatextentdoinstitutionalinvestorsfocusonthe
compositionoftheSB?(banks) 102
5.9 Towhatextentdoinstitutionalinvestorsfocusonthe
compositionoftheSB?(insurances) 102
5.10 Towhatextentdoinstitutionalinvestorsfocusonthe
compositionoftheSB?(pensionfunds) 103
5.11 Towhatextentdoinstitutionalinvestorsfocusonthe
compositionoftheSB?(hedgefunds) 104
5.12 Towhatextentdoinstitutionalinvestorsfocusonthe
compositionoftheSB?(endowments) 104
5.13 Towhatextentdoinstitutionalinvestorsfocusonthe
compositionoftheSB?(SWF) 105
5.14 Towhatextentdoinstitutionalinvestorsfocusonthe
compositionoftheSB?(PE) 106
ix
x ListofFiguresandTables
5.15 Towhatextentdoinstitutionalinvestorsfocusonthe
compositionoftheSB?(Germanfunds) 106
5.16 Towhatextentdoinstitutionalinvestorsfocusonthe
compositionoftheSB?(foreignfunds) 107
5.17 Addedvaluetosupervisoryboardnomination 107
5.18 Howandwhyinstitutionalinvestorscanaddvalueto
supervisoryboardnomination–advantagesand
disadvantages 108
5.19 Towhatextentdoinstitutionalinvestorsaddvaluetothe
processofvaluecreation?(general) 111
5.20 Towhatextentdoinstitutionalinvestorsaddvaluetothe
processofvaluecreation?(banks) 112
5.21 Towhatextentdoinstitutionalinvestorsaddvaluetothe
processofvaluecreation?(insurances) 113
5.22 Towhatextentdoinstitutionalinvestorsaddvaluetothe
processofvaluecreation?(pensionfunds) 113
5.23 Towhatextentdoinstitutionalinvestorsaddvaluetothe
processofvaluecreation?(HF) 114
5.24 Towhatextentdoinstitutionalinvestorsaddvaluetothe
processofvaluecreation?(endowments) 115
5.25 Towhatextentdoinstitutionalinvestorsaddvaluetothe
processofvaluecreation?(SWF) 115
5.26 Towhatextentdoinstitutionalinvestorsaddvaluetothe
processofvaluecreation?(PE) 116
5.27 Towhatextentdoinstitutionalinvestorsaddvaluetothe
processofvaluecreation?(Germanfunds) 116
5.28 Towhatextentdoinstitutionalinvestorsaddvaluetothe
processofvaluecreation?(foreignfunds) 117
5.29 Measurestoimprovecompanyvalue 118
5.30 Institutionalinvestorscanidentifypotentialtoincrease
companyvalue 120
5.31 Identificationofpotentialtoincreasevaluethrough
institutionalinvestors 121
5.32 Towhatextentdoinstitutionalinvestorsmake
recommendationstothecompany?(general) 122
5.33 Towhatextentdoinstitutionalinvestorsmake
recommendationstothecompany?(banks) 123
5.34 Towhatextentdoinstitutionalinvestorsmake
recommendationstothecompany?(insurances) 124
5.35 Towhatextentdoinstitutionalinvestorsmake
recommendationstothecompany?(pensionfunds) 124
5.36 Towhatextentdoinstitutionalinvestorsmake
recommendationstothecompany?(hedgefunds) 125