THE ROLE OF

INSTITUTIONAL
INVESTOR

GROUP MEMBERS
ERMA FARIHIN MUHAMAD
NUR HIDAYAH HUSAIN
TAMIL ALAGI PALANI
VICKNESWARRI A/P SIVANESVARAN

AC 092804
AC 091901
BF 093980
BF 095973

INTRODUCTION
Corporate failure shareholders are also should be blame
Separation of ownership & control has resulted in
managerial dominance & concentration of power among
corporate elites
The abdication by shareholders of their responsibilities as
owners through passivity & absence of voice in the affairs
of the corporations in which they invest

Institutional funds can provide greater transparency on

their nature & extent of activism to further enhance
public confidence in the CG framework

INFLUENCE OF INSTITUTIONAL
INVESTOR
1) THE SIGNIFICANT ROLE OF INSTITUTIONAL INVESTOR
Part 4 of MCCG outlines the importance of institutional investors in
ensuring good CG practices, particularly in monitoring the
composition of the boards & the appointment of NEDS
MCCG (2000) expects inst Inv to use their power & influence to
ensure companies in which they have invested implement the best
practices CG

2) PART C OF MCCG
Encouraged the inst. inv. To have frequent dialogues with the firm
3) FINANCIAL SECTOR MASTER PLAN (FSMP)
Encourage the ownership of banking inst by inst investors
inst inv are able to commit their resources in creating strong
dynamic banking inst

INFLUENCE OF INSTITUTIONAL
INVESTOR (cont)
4. MINORITY SHAREHOLDER WATCHDOG GROUP (MSWG)

Established in 2001 based on the recommendation by Finance

committee of CG in 1999
To encourage or hasten the role of inst. Inv. In terms of shareholders
activism
5. OBJECTIVE OF MWSG
To encourage shareholder activism
To protect minority shareholders

To promote the benefits of good CG practices to all shareholders of

PLCs
6. SERVICE OF MWSG
Proxy voting services
Training & education to create awareness to minority
shareholders
Communicate with various government bodies on CG issues
Undertaking their own research

ROLE & IMPORTANCE OF INST

INV

They have incentive to exercise closer oversight &

control of management & corporate decision
making in order to reduce agency cost & protect
the wealth of the beneficiaries
They are responsible to monitor the performance of
companies (Mallin,2004)
To intervene when they are concerned on several
governance issues
To provide a credible mechanism for transmitting
info to the financial markets (other investors)
To take up their domestic rights to redress the
power imbalance arising from the separation of
ownership & control

INSTITUTIONAL OWNERSHIP IN
MALAYSIA

Abdul Wahab (2006) found that Inst inv own on

average 12.79% of total equity and the top 5 inst inv
alone own on average hold 12.59% of total share
Major local inst inv in Malaysia include EPF, Khazanah
Holdings (KH), LTAT and LUTH, have quite significant
pattern of investments in Malaysian Corporations
PNB & LTAT which often have sizeable minority or
even controlling interest, are represented on boards &
are therefore often insiders and tend to play a more
active role in performance monitoring & even in CG
All large inst inv in Malaysia have a supervisory board
that is appointed by the government that acts as
investment panel advisors

SHAREHOLDERS ACTIVISM
Refer to a range of actions taken by a group of
shareholders to influence corporate management &
boards
Actions range from threatening the sale of their shares,
letter writing, meeting with management and board, to
asking questions at general meetings of shareholders and
the exercise of voting right
Definition by Stu Gillian and Laurab Starks (2002)
Potential shareholders activism is BOD has failed in its duty
Shareholders Activism is need to establish stronger link
between governance & corporate performance and to
achieve greater shareholder democracy

FORMS OF SHAREHOLDER
ACTIVISM
One

to one meetings
Voting at investee companies AGM
Shareholders Resolution
Focus Lists
CG Rating System
The

study by Mohd Fahmi and Omar (2005)

found that minority shareholders activism is
low
in
Malaysia,
particularly
in
their
participation at general meeting as most of
them are not aware of the importance &
benefits of attending general meetings

INSTITUTIONAL OWNERSHIP AND FIRM

PERFORMANCE

Positive & significant

relationship

Cornett (2003)
I.Ido monitor firm
therefore increase
performance value

Negative & significant

relationship
Seifert
(2004)
:
(UK,US, Germany &
Japan)

&
firm

Abdul Wahab (2004)

The number of inst inv
& firm performance
Abdul Wahab (2006)
I.I in Malaysia are actively
playing their role as
monitor
to
ensure
good
governance

Mohd Sehat & Abdul

Rahman (2005)
Largest share held
by I.I were not able to
increase firm
value

SIGNIFICANT
SIGNIFICANT RELATIONSHIP
RELATIONSHIP

1. Seifert (2004) Japan & US

institutional impact on form performance small
their influence depends on their location
differences in the institutional & regulatory
environment among countries
measuring effectiveness of shareholder activism is
problematic
2. Wan Abdullah (2005)
small percentages of shareholdings

the insufficient and passive role plays by I.I in

Malaysia

I.I less incentive to monitor the form they invest

because they escape fiduciary responsibility owning
to government
intervention in fund

THANK
YOU