Critically evaluate the importance and effectiveness of the role of institutional investor in corporate governance?

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Question:- Critically evaluate the importance and effectiveness of the role of institutional investor in corporate governance and firm performance. Support your evaluation by referring to key relevant corporate governance documents, academic studies (including at least ONE academic paper published in 2015-2021) and real-life example(s), and possibly other sources.

Answer:-  Institutional Investors are businesses that aggregate huge sums of amount from a variety of sources and invest it in stocks, real estate, and other financial assets. These include Insurance companies, hedge funds, investment advisors, Banks, investment advisors, mutual funds and university endowments. They are becoming increasingly involved in company surveillance.

In UK listed companies it increased from 54% individuals to 60% institutional 1998and now rising in recent years.The significance of institutional share ownership is growing. The section on institutional shareholders was withdrawn from the UK Corporate Governance Code (2010), and a new UK Stewardship Code was created in its place. The Institutional Shareholders' Committee (ISC): Statement of Guidelines on Institutional Shareholders' and Agents' Responsibilities (2002, 2005, 2007) is Enhancing Institutional Investors' Role in corporate Governance and it lays Code on Institutional Investors' Duties (plsa, 2009)

"Institutional shareholders have a duty to make responsible use of their votes," according to the Combined Code (2008). Institutional investors must have a "coherent policy on voting and transparency of voting activities," according to the UK Stewardship Code. and expanding the number of people who may vote on remuneration policy - "say on pay"

CalPERS, for example, are a public pension fund that often leads the charge in investor protection. it is growing influence of private equity companies and sovereign wealth funds.

The growth of institutional investors' ownership is increasing the influence on corporate governance.

Since institutional investors have the right to exercise voting rights in a firm, they have a lot of clout in corporate management. They can participate fully in corporate governance to increase the value of investee companies. Since the early 2000s, institutional investors have been actively involved in improving corporate governance with the goal of increasing business value. They participate in general shareholder meetings and involve in conversation with investee firms. The findings of the research imply that institutional investors have enhanced corporate governance. It was also discovered that there is a important relationship between changes in institutional investors' shareholdings and performance of the firm across the study period.(Sharma, 2020)

Institutional investors may "target" or recognize companies with poor operating performance and/or corporate governance arrangements. This is a widely utilised practice in the United States; for example, the Council of Institutional Investors has had remarkable success with it. That after business has been identified, it is placed on a list that is made public, and the corporation in issue is told of the targeting. This is meant to have an impact on the performance of the company, as unfavorable publicity connected with "targeting" may increase the immediacy of corporate efforts to make changes and encourage independent directors' efforts to advocate for change.(Nielsen, n.d.)

The studies cited above illustrate that active Institutional Investors often enhance firm performance via their oversight, and that they can shift emphasis of management from short term to long strategy, improving an industry's overall growth of economy. 

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