Which Investors Fear Expropriation? Evidence from Investors' Stock Picking

52 Pages Posted: 23 May 2003

See all articles by Mariassunta Giannetti

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Andrei Simonov

Michigan State University - Eli Broad Graduate School of Management; Russian Presidential Academy of National Economy and Public Administration (RANEPA); Centre for Economic Policy Research (CEPR)

Date Written: March 2003

Abstract

Using a data-set that provides unprecedented details on individual investors' stockholdings, we analyse whether investors take into account corporate governance when they select stocks. After controlling for the supply effect via free float and other firm characteristics, we find that all categories of investors who generally enjoy only security benefits (domestic and foreign; institutional and small individual investors) are reluctant to invest in companies with bag corporate governance. In contrast, individuals who have strong connections with the local financial community because they are board members or hold large blocks of at least some listed companies behave differently. They do not care about the expected extraction of private benefits or even prefer to invest in firms where there is more room for it. Overall, the effect of corporate governance on portfolio decisions is more pronounced for small and medium size companies. These findings shed new light on the determinants of investor behaviour, and suggest that it is important to distinguish between investors who enjoy private benefits or access private information and investors who enjoy only security benefits in order to understand portfolio choices.

Keywords: Investor behaviour, security benefits, portfolio selection, corporate governance, ratio of control to cash flow rights

JEL Classification: F21, G11, G32

Suggested Citation

Giannetti, Mariassunta and Simonov, Andrei, Which Investors Fear Expropriation? Evidence from Investors' Stock Picking (March 2003). CEPR Discussion Paper No. 3843. Available at SSRN: https://ssrn.com/abstract=410582

Mariassunta Giannetti

Stockholm School of Economics ( email )

P.O. Box 6501
Sveavagen 65
SE-113 83 Stockholm
Sweden
+46 8 736 9607 (Phone)
+46 8 312 327 (Fax)

HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

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

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Andrei Simonov (Contact Author)

Michigan State University - Eli Broad Graduate School of Management ( email )

645 N. Shaw Lane, 321 Eppley Center
East Lansing, MI 48824-1122
United States

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

Russian Presidential Academy of National Economy and Public Administration (RANEPA) ( email )

Vernadskogo Prospect 82
Moscow, 119571
Russia

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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