Giofré, Maela/M. (2009): Investor protection and foreign stakeholders.
Download (234Kb) | Preview
This paper investigates the impact of investor protection legislation on foreign shareholders and bondholders. We find, not surprisingly, a positive "direct" effect of investor protection laws: foreign stock and bond investments are encouraged by legislation that better protects, respectively, shareholder and creditor rights. However, different investor classes are endowed with different rights, and conflicting interests among them can make strong protections afforded to one party detrimental to another. Indeed, we find that investor protection laws have significant and sizeable "cross" effects on foreign portfolio investment and that the direction of these effects is fully consistent with the conjecture that foreign stakeholders are relatively more sensitive to the perceived riskiness of assets than domestic investors. Specifically, we find that strong protection of creditor rights -- limiting excessive risk taking -- positively affects foreign shareholders, whereas strong protection of shareholder rights -- potentially shifting a firm toward riskier projects -- has a negative impact on foreign bondholders. The immediate policy implication of our findings is that strengthening investor protection rights is not a universally desirable policy. More specifically, accounting for the interaction of conflicting corporate governance mechanisms is critical to the design of regulatory policies and strategies aimed toward enhancement of inward foreign investment.
|Item Type:||MPRA Paper|
|Original Title:||Investor protection and foreign stakeholders|
|English Title:||Investor protection and foreign stakeholders|
|Keywords:||International portfolio investments, Investor Protection, Bondholders-shareholders conflicts|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets
G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General
|Depositing User:||Maela Giofré|
|Date Deposited:||27. Jan 2010 16:33|
|Last Modified:||18. Feb 2013 23:02|
Acharya, V., Y. Amihud, and L. Litov (2008). Creditor rights and corporate risk taking. CEPR Discussion Paper DP6697.
Aggarwal, R., L. Klapper, and P. Wysocki (2005). Portfolio preferences of foreign institutional investors. Journal of Banking and Finance 29, 2919�-2946.
Brennan, M. and H. Cao (1997). International portfolio investment flows. Journal of Finance 52, 1851-�1880.
Bruno, V. and S. Claessens (2007). Corporate governance and regulation: Can there be too much of a good thing? World Bank Policy Research Working Paper 4140.
Chan, K., V. Covrig, and L. Ng (2005). What determines the domestic bias and foreign bias? evidence from mutual fund equity allocations worldwide. Journal of Finance 60, 1495-�1534.
Cooper, I. and E. Kaplanis (1994). Home bias in equity portfolios, inflation hedging and international capital market equilibrium. Review of Financial Studies 7, 45�-70.
Cremers, M., V. Nair, and C. Wei (2007). Governance mechanisms and bond prices. Review of Financial Studies 20, 1359�-1388.
Dahlquist, M., L. Pinkowitz, R. Stulz, and R. Williamson (2003). Corporate governance and the home bias. Journal of Financial and Quantitative Analysis 38, 87�-110.
Dahlquist, M. and G. Robertsson (2001). Direct foreign ownership, institutional investors and firm characteristics. Journal of Financial Economics 59, 413�-440.
Das, S. and R. Uppal (2004). Systemic risk and international portfolio choice. Journal of Finance 59, 2809-�2834.
Djankov, S., O. Hart, C. McLeish, and A. Shleifer (2008). Debt enforcement around the world. Journal of Political Economy 116, 1105-�1149.
Epstein, L. and J. Miao (2003). A two-person dynamic equilibrium under ambiguity. Journal of Economic Dynamics and Control 27, 1253�-1288.
Fidora, M., M. Fratzscher, and C. Thimann (2007). Home bias in global bond and equity markets: The role of real exchange rate volatility. Journal of International Money and Finance 26, 631�-655.
Gehrig, T. (1993). An information based explanation of the domestic bias in international equity investment. Scandinavian Journal of Economics 95, 97�-109.
Giannetti, M. and Y. Koskinen (2010). Investor protection, equity returns and financial globalization. Journal of Financial and Quantitative Analysis. forthcoming.
Giofré, M. (2008). Information asymmetries and foreign equity portfolios: households vs. financial investors. CeRP Working Paper Series 74/08.
Grinblatt, M. and M. Keloharju (2001). How distance, language, and culture influence stockholdings and trades. Journal of Finance 56, 1053�-1073.
Grossman, S. and J. Stiglitz (1980). On the impossibility of informationally efficient markets. American Economic Review 70, 393�-408.
Guiso, L., P. Sapienza, and L. Zingales (2009). Cultural biases in economic exchange? Quarterly Journal of Economics 124, 1095�-1131.
Jensen, M. and W. Meckling (1976). Theory of the firm: managerial behavior, agency costs, and ownership structure. Journal of Financial Economics 3, 305�-360.
Kang, J. and R. Stulz (1997). Why is there a home bias? An analysis of foreign portfolio equity ownership in Japan. Journal of Financial Economics 46, 3�28.
Karolyi, A. and R. Stulz (2003). Are financial assets priced locally or globally? Handbook of the Economics and Finance 1, 975�-1020.
Klock, M., S. Mansi, and W. Maxwell (2004). Corporate governance and the agency cost of debt. Journal of Financial and Quantitative Analysis 40, 693�-719.
La Porta, R., F. Lopez-de-Silanes, A. Shleifer, and R. Vishny (1998). Law and Finance. Journal of Political Economy 106, 1113-�1154.
La Porta, R., F. Lopez-de-Silanes, A. Shleifer, and R. Vishny (2000). Investor protection and corporate governance. Journal of Financial Economics 58, 3�-27.
Lane, P. (2006). Global bond portfolios and EMU. International Journal of Central Banking 2, 1�-23.
Lane, P. and G. Milesi-Ferretti (2007). The international equity holdings of euro area investors. in The Importance of the External Dimension for the Euro Area: Trade, Capital Flows, and International Macroeconomic Linkages (Robert Anderton and Filippo di Mauro, eds), Cambridge University Press.
Levy, H. and M. Sarnat (1970). International diversification in investment portfolios. American Economic Review 60, 668�-675.
Lewis, K. (1999). Trying to explain home bias in equities and consumption. Journal of Economic Literature 37, 571�-608.
Mansi, S., W. Maxwell, and J. Wald (2009). Creditor protection laws and the cost of debt. Journal of Law and Economics forthcoming.
Merton, R. (1969). Lifetime portfolio selection under uncertainty: the continuous time case. Review of Economics and Statistics 51, 247�-257.
Myers, S. (1977). Determinants of corporate borrowing. Journal of Financial Economics 5, 147-�175.
Padilla, A. and M. Pagano (2005). Efficiency gains from integration of exchanges. lessons from the Euronext natural experiment. A Report for Euronext, Law and Economics Consulting Group (LECG), Brussel-Madrid.
Portes, R. and H. Rey (2005). The determinants of cross-border equity flows. Journal of International Economics 65, 269�-296.
Santis, G. D. and B. Gerard (1997). International asset pricing and portfolio diversification with time-varying risk. Journal of Finance 52, 1881�-1912.
Shleifer, A. and R. Vishny (1986). Large shareholders and corporate control. Journal of Political Economy 94, 461�-488.
Shleifer, A. and D. Wolfenzon (2002). Investor protection and equity markets. Journal of Financial Economics 66, 3�-27.
Sorensen, B. E., Y. Wu, O. Yosha, and Y. Zhu (2007). Home bias and international risk sharing: Twin puzzles separated at birth. Journal of International Money and Finance 26, 587�-605.
Thapa, C. and S. Poshakwale (2009). Investor protection and foreign equity portfolio investments. Unpublished.
Uppal, R. and T. Wang (2003). Model misspecification and underdiversification. Journal of Finance 58, 2465�-2486.
Vlachos, J. (2004). Does regulatory harmonization increase bilateral asset holdings? CEPR Discussion Paper DP4417.
Available Versions of this Item
- Investor protection and foreign stakeholders. (deposited 27. Jan 2010 16:33) [Currently Displayed]