Do Foreigners Invest Less in Poorly Governed Firms?

63 Pages Posted: 8 Jun 2004 Last revised: 31 Mar 2008

See all articles by Christian Leuz

Christian Leuz

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Leibniz Institute SAFE; CESifo Research Network; Center for Financial Studies (CFS)

Karl V. Lins

University of Utah - Department of Finance

Francis E. Warnock

University of Virginia - Darden Business School; National Bureau of Economic Research (NBER)

Multiple version iconThere are 4 versions of this paper

Date Written: February 2008

Abstract

As domestic sources of outside finance are limited in many countries around the world, it is important to understand factors that influence whether foreign investors provide capital to a country's firms. We study 4,409 firms from 29 countries to assess whether and why concerns about corporate governance result in fewer foreign holdings. We find that foreigners invest less in firms that reside in countries with poor outsider protection and disclosure and have ownership structures that are conducive to governance problems. This effect is particularly pronounced when earnings are opaque, indicating that information asymmetry and monitoring costs faced by foreign investors likely drive the results.

Note: Previously titled "Corporate Governance and the Shareholder Base"

Keywords: Corporate governance, Foreign investment, Ownership structure, Information flow, Earnings management, Shareholder base, Home bias

JEL Classification: D82, F30, G14, G15, G32, G34, K22, M41

Suggested Citation

Leuz, Christian and Lins, Karl V. and Warnock, Francis E., Do Foreigners Invest Less in Poorly Governed Firms? (February 2008). ECGI - Finance Working Paper No. 43/2004 , IFDP No. 816, Available at SSRN: https://ssrn.com/abstract=677642 or http://dx.doi.org/10.2139/ssrn.677642

Christian Leuz

University of Chicago - Booth School of Business ( email )

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HOME PAGE: http://faculty.chicagobooth.edu/christian.leuz/

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Centre for Economic Policy Research (CEPR) ( email )

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Leibniz Institute SAFE ( email )

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CESifo Research Network

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Center for Financial Studies (CFS) ( email )

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Karl V. Lins (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
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United States
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801-581-7214 (Fax)

Francis E. Warnock

University of Virginia - Darden Business School ( email )

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United States
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HOME PAGE: http://faculty.darden.virginia.edu/warnockf/index.htm

National Bureau of Economic Research (NBER) ( email )

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