Do Institutional Owners Monitor? Evidence from Voting on Connected Transaction Proposals in Hong Kong-Listed Companies

The conventional view in Hong Kong has been that institutional owners tend to be passive owners and that they do little to monitor the companies’ management. We investigated whether the presence of institutional owners in Hong Kong-listed companies was associated with greater monitoring of management through dissent voting by hand-collecting information for a sample (n= 96) of connected transaction proposals (“CT proposals”) and of their voting outcomes, as announced in the Stock Exchange of Hong Kong during the period from 2012–14. Our study shows that voting approval rates on CT proposals were lower (i.e. greater dissent voting) when institutional owners had at least 5 percent shareholdings and when the CT proposals were likely to expropriate or when the company holding the vote did not have a controlling shareholder. These findings support the view that the presence of institutional ownership in Hong Kong can be consistent with monitoring effects and, to that extent, with good governance.