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The Value of Clean Hands: How to Appeal to International Equity Investors

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  • Sercu, Piet

    ()
    (K.U. Leuven, Faculty of Business and Economics, Research Center of International Finance and Louvain School of Management, Department of Finance)

  • Vanpée, Rosanne

    ()
    (Hogeschool-Universiteit Brussel (HUB), Belgium)

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    Abstract

    While intuition suggests that governance and transparency at the corporate level are primordial for a country's international appeal, foreign portfolio investors appear to care first and foremost about transparency, predictability and honesty at the government level. This is, at least, what our analysis of international portfolio holdings implies. Our estimates further indicate that (i) a feasible improvement of government corruption, economic policy transparency and especially institutional quality can trigger an economically substantial rise in foreign interest for the stocks of that country; and (ii) an amelioration in country-level governance variables creates significantly higher eects on foreign equity demand than an improvement in traditional macroeconomic policy indicators.

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    Bibliographic Info

    Paper provided by Hogeschool-Universiteit Brussel, Faculteit Economie en Management in its series Working Papers with number 2011/26.

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    Length: 37 page
    Date of creation: Sep 2011
    Date of revision:
    Handle: RePEc:hub:wpecon:201126

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    Web page: http://research.hubrussel.be
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    Related research

    Keywords: Corporate governance; government effectiveness; institutional quality; international capital flows; international equity allocation;

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