Which Investors Fear Expropriation? Evidence from Investors' Portfolio Choices

53 Pages Posted: 27 Oct 2004  

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; Gaidar Institute for Economic Policy; Centre for Economic Policy Research (CEPR); SITE

Multiple version iconThere are 2 versions of this paper

Date Written: June 2004

Abstract

Using a data set that provides unprecedented detail on investors' stockholdings, we analyze whether investors take the quality of corporate governance into account when selecting stocks. 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 weak corporate governance. In contrast, individuals who are well connected with the local financial community because they are board members or hold large blocks of at least some listed companies behave differently. They seem not to care about the expected extraction of private benefits and even prefer to invest in companies where there is more scope for it. These findings shed new light on the determinants of investor behavior and portfolio choice, 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.

Keywords: Investor behavior, shareholder base, security benefits, portfolio selection, corporate governance

JEL Classification: G11, G32, F21

Suggested Citation

Giannetti, Mariassunta and Simonov, Andrei, Which Investors Fear Expropriation? Evidence from Investors' Portfolio Choices (June 2004). ECGI - Finance Working Paper No. 54/2004; EFA 2003 Annual Conference Paper No. 715. Available at SSRN: https://ssrn.com/abstract=423448 or http://dx.doi.org/10.2139/ssrn.423448

Mariassunta Giannetti (Contact Author)

Stockholm School of Economics ( email )

P.O. Box 6501
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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)

77 Bastwick Street
London, EC1V 3PZ
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

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

Gaidar Institute for Economic Policy ( email )

3-5 Gazetny Lane
Moscow, 125009
Russia

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

SITE ( email )

P.O. Box 6501
S-113 83 Stockholm, 11383
Sweden

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