Abstract
The level of institutional ownership plays an important role in the effectiveness of monitoring. Kahn and Winton claim that “if we are to predict which firms an institution is most likely to intervene in, we must look at … the size of the institution’s stake” (1998, 101), as this may “influence the magnitude and sign of intervention’s impact on the institution’s trading profits” (1998, 101). The implication underlying this claim is that the size of its stake is the basis on which an institution decides whether to intervene. It also suggests that the lower the threshold of the size of the stake needed for intervention, the greater the gains from a large size stake and the easier is the decision made by the institution on whether to intervene. The model of ownership structure will have a direct influence on this threshold and is normally much lower in a dispersed ownership structure than in a concentrated ownership structure. This threshold should be the level of ownership of voting shares needed for an institution to influence or put pressure on the decisions made by management at the annual meeting.
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Notes
- 1.
If the total shares issued by a firm include tradable shares and non-tradable shares, w is the total number of tradable shares issued by that firm.
- 2.
The terms Z index and S index are borrowed from the CSMAR database. In CSMAR, the Z index is the ratio of the proportion of shares held by the first largest shareholder to the proportion of shares held by the second largest shareholder. The S index is the sum of the proportions of shares held by the second largest shareholder compared to the tenth largest shareholder. However, both indices have been modified and redefined in this section.
- 3.
There are reasons for selecting large shareholders from the second largest to tenth largest to calculate the S index. First, data on the ten largest shareholders are normally available in Chinese databases such as CSMAR, CCER and Wind. Any of the ten largest shareholders whose data on the proportion of shareholdings in Chinese listed companies are missing is therefore excluded. Second, the selection of other large shareholders forming a shareholder coalition with QFIIs measures the maximum likelihood of the S index which will assess QFIIs’ maximum or potential maximum power of checks and balances within a shareholder coalition, or potential shareholder coalition, in Chinese listed companies.
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Wang, W. (2019). QFII’s Capacity for Institutional Activism. In: Institutional Activism in Corporate Governance. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-19577-9_6
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