Posted: 5 Aug 2009
Date Written: August 2009
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 twenty-nine 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: G11, G15, G32, G34
Suggested Citation: Suggested Citation
Leuz, Christian and Lins, Karl V. and Warnock, Francis E., Do Foreigners Invest Less in Poorly Governed Firms? (August 2009). The Review of Financial Studies, Vol. 22, Issue 8, pp. 3245-3285, 2009. Available at SSRN: https://ssrn.com/abstract=1443059 or http://dx.doi.org/hhn089