Where do Local and Foreign Investors Lose Their Edge? The Mediating Role of State Ownership in Shaping Their Relative Informational Advantage

59 Pages Posted: 15 Sep 2010 Last revised: 28 Jul 2019

See all articles by Xiaoya (Sara) Ding

Xiaoya (Sara) Ding

University of San Francisco - School of Management

Omrane Guedhami

University of South Carolina - Moore School of Business

Yang Ni

Shanghai Jiao Tong University (SJTU)

Jeffrey Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Date Written: July 2019

Abstract

Extant evidence is mixed on whether local investors or foreign investors are better informed. In this paper, we shed light on this debate by investigating how state ownership of listed firms shapes the information environment facing institutional investors. Prior research documents that state ownership is associated with worse information asymmetry stemming from poor governance structures and financial transparency, implying that investing in firms with state ownership requires more local knowledge and experience. In analyzing Chinese listed firms, we find strong, robust evidence that the information advantage of local versus foreign institutional investors hinges on the extent of state ownership: in state-owned enterprises (SOEs), local institutional ownership strongly predicts future stock returns while foreign institutional ownership does not, whereas in non-SOEs, foreign institutional ownership strongly predicts future stock returns while local institutional ownership does not. In additional analysis consistent with expectations, we find that stronger monitoring, as reflected in board independence and auditor choice, narrows (widens) the information disadvantage (advantage) of foreign institutional investors in SOEs (non-SOEs).

Keywords: State Ownership; Local Institutional Investors; Foreign Institutional Investors; Information Asymmetries; Monitoring

JEL Classification: G14; G15

Suggested Citation

Ding, Xiaoya (Sara) and Guedhami, Omrane and Ni, Yang and Pittman, Jeffrey A., Where do Local and Foreign Investors Lose Their Edge? The Mediating Role of State Ownership in Shaping Their Relative Informational Advantage (July 2019). Available at SSRN: https://ssrn.com/abstract=1676629 or http://dx.doi.org/10.2139/ssrn.1676629

Xiaoya (Sara) Ding

University of San Francisco - School of Management ( email )

San Francisco, CA 94117
United States

Omrane Guedhami

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

Yang Ni (Contact Author)

Shanghai Jiao Tong University (SJTU) ( email )

KoGuan Law School
Shanghai 200030, Shanghai 200052
China

Jeffrey A. Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada
709-737-3100 (Phone)
709-737-7680 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
301
Abstract Views
3,015
rank
138,595
PlumX Metrics