Are Foreign Ownership and Good Institutions Substitutes? The Case of Non-Traded Equity

42 Pages Posted: 13 May 2004

See all articles by Cecile Denis

Cecile Denis

European Commission

Harry Huizinga

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR)

Date Written: April 2004

Abstract

High domestic shareholder concentration for publicly-traded firms is a common mechanism to mitigate minority shareholder expropriation in environments of poor investor protection. This offers an explanation of the home bias in share portfolios. An alternative mechanism, common in the case of non-traded firms, is to have a controlling foreign shareholder that may be subject to high international standards of investor protection. This Paper presents a model explaining a high foreign ownership share of non-traded equity in countries with poor investor protection. Empirical evidence supports the hypothesis that foreign ownership of non-traded equity is higher in countries with poor investor protection.

Keywords: Foreign ownership, shareholder protection, non-traded equity

JEL Classification: F36, G32

Suggested Citation

Denis, Cecile and Huizinga, Harry, Are Foreign Ownership and Good Institutions Substitutes? The Case of Non-Traded Equity (April 2004). Available at SSRN: https://ssrn.com/abstract=541043

Cecile Denis (Contact Author)

European Commission ( email )

200 Rue de la Loi
B-1049 Brussels
Belgium
(32 2) 296 1468 (Phone)

Harry Huizinga

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2623 (Phone)
+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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