Abstract

http://ssrn.com/abstract=1106276
 
 

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Do Foreigners Invest Less in Poorly Governed Firms?


Christian Leuz


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Center for Financial Studies (CFS); University of Pennsylvania - Wharton Financial Institutions Center; CESifo Research Network

Karl V. Lins


University of Utah - Department of Finance

Francis E. Warnock


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


Review of Financial Studies, 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.

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

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

Accepted Paper Series


Not Available For Download

Date posted: March 19, 2008  

Suggested Citation

Leuz, Christian and Lins, Karl V. and Warnock, Francis E., Do Foreigners Invest Less in Poorly Governed Firms?. Review of Financial Studies, 2008. Available at SSRN: http://ssrn.com/abstract=1106276

Contact Information

Christian Leuz
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-1996 (Phone)
HOME PAGE: http://chicagobooth.edu/fac/christian.leuz
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
HOME PAGE: http://www.nber.org
European Corporate Governance Institute (ECGI)
Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Center for Financial Studies (CFS) ( email )
Grüneburgplatz 1
Frankfurt am Main, 60323
Germany
University of Pennsylvania - Wharton Financial Institutions Center
3641 Locust Walk
Philadelphia, PA 19104-6218
United States
CESifo Research Network
Poschinger Str. 5
Munich, DE-81679
Germany
Karl V. Lins (Contact Author)
University of Utah - Department of Finance ( email )
David Eccles School of Business
Salt Lake City, UT 84112
United States
801-585-3171 (Phone)
801-581-7214 (Fax)
Francis E. Warnock
University of Virginia - Darden Business School ( email )
P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-6076 (Phone)
HOME PAGE: http://faculty.darden.virginia.edu/warnockf/index.htm
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138-5398
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