QFII’s Capacity for Institutional Activism
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.
- Wildau, Gabriel, and Hudson Lockett. 2017. China Pledges to Open Finance Sector to More Foreign Ownership. https://www.ft.com/content/d4a85422-c5d5-11e7-b2bb-322b2cb39656