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

Author

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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)

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.

Suggested Citation

  • Sercu, Piet & Vanpée, Rosanne, 2011. "The Value of Clean Hands: How to Appeal to International Equity Investors," Working Papers 2011/26, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    • Handle: RePEc:hub:wpecon:201126
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    More about this item

    Keywords

    Corporate governance; government effectiveness; institutional quality; international capital flows; international equity allocation;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • F3 - International Economics - - International Finance

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