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Which Investors Fear Expropriation? Evidence from Investors' Stock Picking

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Author Info
Giannetti, Mariassunta
Simonov, Andrei

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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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3843.

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Date of creation: Mar 2003
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Handle: RePEc:cpr:ceprdp:3843

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Related research
Keywords: corporate governance; investor behaviour; portfolio selection; ratio of control to cash flow rights; security benefits;

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Find related papers by JEL classification:
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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