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Abstract

In this study I provide an empirical analysis of the impact of institutional shareholders on the performance of UK corporations, with specific reference to the monitoring role of the different types of institutional investors. I analyse and compare the shareholding in all UK non-financial companies quoted in the London Stock Exchange in 1993 and 1997 in order to understand whether different types of shareholder groups monitor companies in which they hold large stakes. I then analyse the market response to the trades of institutional investors, using a unique data set of 8,590 buy orders and 8,136 sell orders during the 1993- 1998 period, in order to see whether these trades convey information to the market regarding the expected monitoring or are merely a result of the trading strategies followed. Finally, I examine a number of operational, financial and governance changes that take place during the one-year period before and after the share purchases by institutional investors with the intention of detecting post purchase monitoring evidence.

I find that certain types of institutional investors prefer to invest in companies with some specific financial attributes. The results suggest that institutional investors differ in their management styles and cannot be treated as a single large group of investors with a similar disposition towards monitoring. Also, I report that the relationship between ownership structure and firm value has shifted significantly in the last decade. The results suggest that companies adopt an optimal ownership structure that minimises potential agency conflicts, given their nexus-of-contracts. The second part of the thesis is concerned with institutional trades. The results do not provide support for the monitoring hypothesis but suggest that block trades reflect the trading strategies of institutional investors and that some institutions are better than others in timing their trades. The last part of the thesis deals with post block purchase performance of the targeted companies. I provide evidence of shareholder monitoring following purchases by pressure-resistant institutions, largely driven by pension funds, during the year subsequent to the trade. However, I fail to detect significant changes in operations and corporate governance for block purchases of at least 5 percent of the outstanding ordinary shares of the company.

On the whole, the findings support the view that institutional investors prefer to use indirect means in bringing about changes in the firm. Previous studies have referred to this attitude as “quiet diplomacy” (Bethel et al., 1998), institutional network with “club-like dynamics” (Short and Keasey, 1997) and monitoring through “behind the scenes” action (Stapledon, 1996).

Publication Type:	Thesis (Doctoral)
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School > Bayes Business School Doctoral Theses Bayes Business School > Finance Doctoral Theses

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