The impact of governance improvement of institutional shareholders on firm value

In this study, we investigate whether the measures to improve corporate governance of financial institutions promoted by the Chinese authorities in 2013 have contributed to the positive growth of the values of institutional investments in firms. Given the regulatory changes about financial institutions in 2013, we hypothesise that the improvement of corporate governance of financial institutions has a spillover effect and increases the performance of the companies that the institutions invest in. Our results are robust in supporting the hypothesis, even after we address for reverse causality issue. In particular, we verify that the spillover of governance, arising from the improvement of corporate governance in financial institutions, can strengthen the positive association between institutional ownership and firm value.