Download this Paper Open PDF in Browser

Are Foreign Investors Locusts? The Long-Term Effects of Foreign Institutional Ownership

82 Pages Posted: 29 Oct 2016  

Jan Bena

University of British Columbia - Sauder School of Business

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Pedro P. Matos

University of Virginia - Darden School of Business; European Corporate Governance Institute (ECGI)

Pedro Pires

Nova School of Business and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 28, 2016

Abstract

This paper challenges the view that foreign investors lead firms to adopt a short-term orientation and forgo long-term investment. Using a comprehensive sample of publicly listed firms in 30 countries over the period 2001–2010, we find instead that greater foreign institutional ownership fosters long-term investment in tangible, intangible, and human capital. Foreign institutional ownership also leads to significant increases in innovation output. We identify these effects by exploiting the exogenous variation in foreign institutional ownership that follows the addition of a stock to the MSCI indexes. Our results suggest that foreign institutions exert a disciplinary role on entrenched corporate insiders worldwide.

Keywords: Innovation, Institutional ownership, Investment, Monitoring, Patents

JEL Classification: G31, G32, O32

Suggested Citation

Bena, Jan and Ferreira, Miguel A. and Matos, Pedro P. and Pires, Pedro, Are Foreign Investors Locusts? The Long-Term Effects of Foreign Institutional Ownership (October 28, 2016). Journal of Financial Economics (JFE), Forthcoming; Darden Business School Working Paper No. 2860849. Available at SSRN: https://ssrn.com/abstract=2860849

Jan Bena

University of British Columbia - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
+1 604 822 8490 (Phone)

HOME PAGE: http://www.janbena.com

Miguel Almeida Ferreira (Contact Author)

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Pedro P. Matos

University of Virginia - Darden School of Business ( email )

University of Virginia
P.O. Box 6550
Charlottesville, VA 22906-6550
United States

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Pedro M. Pires

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

Paper statistics

Downloads
286
Rank
25,736
Abstract Views
849