INSTITUTIONAL INVESTORS

Ethics and Corporate Governance



Ethics and Corporate Governance

Institutional Investors- Problem or Solution to Corporate governance

Yes, institutional investors have good effects on corporate governance. Defending it with various justifications that are, they are specialized in their field and relevancy is their major strength. They do no invest on gut feeling or instincts rather they rely on the calculations and historical data. They get judgmental towards the company while investing in its assets. They look at the big picture and various factors while investing. Therefore, their investments are successful, people are benefited and company's that are worth receiving fund and have the potential to expand or grow receive capital.

Introduction

They are investors that pool their money together to invest in certain assets of a company. Those assets can be stocks, real estate property or any other investment assets that can yield profits. Institutional investors may also comprise of companies who take decisions to invest their money in assets.

Purpose of Institutional Investors

These investors can be certain banks, insurance companies, retirement or pension funds, hedgers, advisors for investments and mutual funds. Their contribution in the economy is to act as professional investors on behalf of others. We can understand this with an easy example that there is a person who will receive pension from his employer. The employer then gives the pension contribution to a fund. Now with this fund, stocks of some company or any other financial instrument will be purchased. Funds seem useful as they will have diverse collections of investments in many companies. The spread risk is then reduced that is if one company fails, there will just be a little loss that the person has to bear.

Institutional investors are actively involved in the activities of corporate governance. They can also give proposals or ideas the management. This right has been given to them in the rule of Security and Exchange Commission. They are also involved in negotiating with the management for the benefits of the company. They also do so in order to improve the company's performance. As institutional investors act on behalf of company's owners, they hold the right to speak in the benefits of the company. (emle.org, 2013)

These institutional investors have a great degree of power over the management. This is because of the reason that they have been given entitlement to vote and since they possess such voting rights they can elect or reject any person on the board. |They have the rights to take part in corporate governance. Moreover, since these investors have autonomy in purchasing and selling of shares, they can purchase a lot of company's share and results in solvency of the company. Influencing the limited companies and providing them with funds are the jobs of institutional investors.

A non specialized person that trades in securities will face extra obstacles while trading because of his little or no experience. While institutional investors will face less protective regulations as they are highly specialized, knowledgeable and possess the tactics to prevent themselves from severe losses, ...