The Effects of Information Voids on Capital Flows in Emerging Markets

61 Pages Posted: 12 Nov 2016

See all articles by Allison Kingsley

Allison Kingsley

University of Vermont - Grossman School of Business

Benjamin A. T. Graham

University of Southern California - School of International Relations

Date Written: 2016

Abstract

Information voids reflect a lack of publicly available information about a country’s investment climate, and represent the information problems associated with institutional voids. We argue that foreign investors differ in their sensitivity to information voids based on their own private information and their flexibility in responding rapidly to change. We predict that foreign banks will be least hampered by information voids, due to their privileged access to private information about local conditions and ability to adapt quickly to new information. Portfolio investors, while impeded by information voids due to their severely limited access to local private information, are able to quickly respond to new information. Foreign direct investors have moderate access to local private information, yet their inability to adapt quickly creates problems dealing with information voids. Using time-series cross-sectional data on local public information and capital flows to the thirty largest emerging markets from 1994 to 2012, we find preliminary support for our hypotheses regarding the sensitivity of different investors to information voids. We find that direct investors are most sensitive to information voids and banks are least sensitive, while portfolio investors are moderately sensitive.

Keywords: institutional voids, FDI, investment, bank debt, portfolio investment, information, information voids

JEL Classification: F23, F30, D80, G15

Suggested Citation

Kingsley, Allison and Graham, Benjamin A. T., The Effects of Information Voids on Capital Flows in Emerging Markets (2016). Available at SSRN: https://ssrn.com/abstract=2657308 or http://dx.doi.org/10.2139/ssrn.2657308

Allison Kingsley (Contact Author)

University of Vermont - Grossman School of Business ( email )

302 Kalkin Hall
Burlington, VT 05405-0158
United States
8026563464 (Phone)

HOME PAGE: http://allisonkingsley.com

Benjamin A. T. Graham

University of Southern California - School of International Relations ( email )

3518 Trousdale Parkway
VKC 330
Los Angeles, CA California 90089-0043
United States
8586996306 (Phone)
2137420281 (Fax)

HOME PAGE: http://https://dornsife.usc.edu/graham

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