Foreign Equity Ownership and Information Asymmetry: Evidence from Japan

27 Pages Posted: 16 Sep 2004

See all articles by Li Jiang

Li Jiang

Hong Kong Polytechnic University

Jeong-Bon Kim

City University of Hong Kong

Abstract

Using a large sample of Japanese firms, we investigate whether the level of foreign ownership in a firm is inversely related to information asymmetry between firm (managers) and market (outside investors). Since information asymmetry is not directly observable and, thus, is difficult to measure empirically, our analysis focuses on the link between foreign shareholding and a measurable consequence of information asymmetry; that is, the timing and magnitude of intertemporal return-earnings associations. The empirical results support our hypothesis, and subsequent tests based on residual foreign ownership show that the relation between foreign ownership and information asymmetry is robust to the addition of various control variables such as market capitalization and cross-corporate holdings. We also show that foreign investors tend to avoid stocks with high cross-corporate holdings. Overall, our results suggest that foreign (institutional) investors are likely to be efficient processors of public information and are attracted to Japanese firms with low information asymmetry.

Suggested Citation

Jiang, Li and Kim, Jeong-Bon, Foreign Equity Ownership and Information Asymmetry: Evidence from Japan. Available at SSRN: https://ssrn.com/abstract=591399

Li Jiang

Hong Kong Polytechnic University ( email )

Hung Hom, Kowloon
Hong Kong

Jeong-Bon Kim (Contact Author)

City University of Hong Kong ( email )

Department of Accountancy
83 Tat Chee Avenue
Kowloon Tong
Hong Kong
852-3442-7909 (Phone)

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