Which Investors Fear Expropriation? Evidence from Investors' Portfolio Choices

Abstract:     
Using a data set that provides unprecedented detail on investors' stockholdings, we analyze whether investors take the quality of corporate governance into account when selecting stocks. We find that all categories of investors (domestic and foreign, institutional and small individual investors), who generally enjoy only security benefits, are reluctant to invest in companies with weak corporate governance. In contrast, individuals who are connected with company insiders are more likely to invest in weak corporate governance companies. These findings suggest that it is important to distinguish between investors who enjoy private benefits or access private information, and investors who enjoy only security benefits.

Keywords: Investor behavior, shareholder base, security benefits, private benefits, portfolio selection, corporate governance

JEL Classification: G11, G32, F21

Accepted Paper Series