Do Small Firms Benefit More from Foreign Portfolio Investment? Evidence from a Natural Experiment
41 Pages Posted: 19 Mar 2011 Last revised: 19 Mar 2012
Date Written: March 15, 2011
We analyze the stock market impact of Thailand's unique restriction on portfolio capital in flows. The Thai government imposed a very stringent capital control on December 19, 2006 and then quickly abandoned it on December 20, 2006. This experiment helps us separate the impact of foreign capital from the impact of other concurrent events and hence alleviates the time-series identification problem. Our results suggest that foreign portfolio investment helps large firms more, contrary to existing evidence which finds a benefit of foreign portfolio investment for small firms. We also investigate the importance of other firm characteristics correlated with size including a firm's exchange rate exposure, foreign ownership fraction, and political connection.
JEL Classification: F32, G15, G18
Suggested Citation: Suggested Citation