Advanced Search
MyIDEAS: Login to save this paper or follow this series

How Does Corporate Governance Risk at Home Affect Investment Choices Abroad?

Contents:

Author Info

  • Woochan Kim
  • Taeyoon Sung
  • Shang-Jin Wei

Abstract

Disparity between control and ownership rights gives rise to the risk of tunneling by the controlling shareholder, and is prevalent in many emerging market economies and present in some developed countries. At the same time, international investors come from different countries whose home markets are characterized by varying degrees of control-ownership disparity. This paper studies whether this difference in investors’ home countries affects their portfolio choice in an emerging market. It combines two unique data sets on ownership and control in business groups, and investor-stock level foreign investment in Korea. A key finding is that, investors from low-disparity countries disfavor high-disparity stocks in Korea, but investors from high-disparity countries are indifferent. Moreover, investors from low-disparity countries became averse to disparity only after the Asian financial crisis. These results suggest that the nature of corporate governance in international investors’ home countries affects their portfolio choice abroad, and therefore that these investors should not be lumped together in the analyses of their portfolio choice.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w13721.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13721.

as in new window
Length:
Date of creation: Jan 2008
Date of revision:
Publication status: published as Woochan Kim, Taeyoon Sung, Shang-Jin Wei Does corporate governance risk at home affect investment choices abroad? ☆ Journal of International Economics, Volume 85, Issue 1, September 2011, Pages 25–41
Handle: RePEc:nbr:nberwo:13721

Note: CF IFM
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Christian Leuz & Karl V. Lins & Francis E. Warnock, 2006. "Do Foreigners Invest Less in Poorly Governed Firms?," NBER Working Papers 12222, National Bureau of Economic Research, Inc.
  2. Baek, Jae-Seung & Kang, Jun-Koo & Suh Park, Kyung, 2004. "Corporate governance and firm value: evidence from the Korean financial crisis," Journal of Financial Economics, Elsevier, Elsevier, vol. 71(2), pages 265-313, February.
  3. Rafael La porta & Florencio Lopez-De-Silanes & Andrei Shleifer & Robert Vishny, 2002. "Investor Protection and Corporate Valuation," Journal of Finance, American Finance Association, American Finance Association, vol. 57(3), pages 1147-1170, 06.
  4. Eric Friedman & Simon Johnson & Peter Boone & Alasdair Breach, 1999. "Corporate Governance in the Asian Financial Crisis," Departmental Working Papers, Rutgers University, Department of Economics 199920, Rutgers University, Department of Economics.
  5. Kim, Woochan & Wei, Shang-Jin, 2002. "Offshore investment funds: monsters in emerging markets?," Journal of Development Economics, Elsevier, Elsevier, vol. 68(1), pages 205-224, June.
  6. Woochan Kim & Shang-Jin Wei, 1999. "Foreign Portfolio Investors before and during a Crisis," CID Working Papers, Center for International Development at Harvard University 6, Center for International Development at Harvard University.
  7. Bernard S. Black & Hasung Jang & Woochan Kim, 2006. "Does Corporate Governance Predict Firms' Market Values? Evidence from Korea," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 22(2), pages 366-413, October.
  8. R. Gaston Gelos & Shang-Jin Wei, 2005. "Transparency and International Portfolio Holdings," Journal of Finance, American Finance Association, American Finance Association, vol. 60(6), pages 2987-3020, December.
  9. Alexander Dyck & Luigi Zingales, 2002. "Private Benefits of Control: An International Comparison," NBER Working Papers 8711, National Bureau of Economic Research, Inc.
  10. Stijn Claessens & Simeon Djankov & Joseph P. H. Fan & Larry H. P. Lang, 2002. "Disentangling the Incentive and Entrenchment Effects of Large Shareholdings," Journal of Finance, American Finance Association, American Finance Association, vol. 57(6), pages 2741-2771, December.
  11. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, Elsevier, vol. 3(4), pages 305-360, October.
  12. Dahlquist, Magnus & Pinkowitz, Lee & Stulz, René M. & Williamson, Rohan, 2002. "Corporate Governance and the Home Bias," SIFR Research Report Series, Institute for Financial Research 11, Institute for Financial Research.
  13. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 1998. "Corporate Ownership Around the World," NBER Working Papers 6625, National Bureau of Economic Research, Inc.
  14. Vives,Xavier (ed.), 2006. "Corporate Governance," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521032032.
  15. Michael L. Lemmon & Karl V. Lins, 2003. "Ownership Structure, Corporate Governance, and Firm Value: Evidence from the East Asian Financial Crisis," Journal of Finance, American Finance Association, American Finance Association, vol. 58(4), pages 1445-1468, 08.
  16. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," NBER Working Papers 5879, National Bureau of Economic Research, Inc.
  17. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, Elsevier, vol. 58(1-2), pages 81-112.
  18. Reena Aggarwal & Leora Klapper & Peter D. Wysocki, 2003. "Portfolio preferences of foreign institutional investors," Policy Research Working Paper Series 3101, The World Bank.
  19. Simeon Djankov & Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2005. "The Law and Economics of Self-Dealing," NBER Working Papers 11883, National Bureau of Economic Research, Inc.
  20. Giannetti, Mariassunta & Koskinen, Yrjö, 2010. "Investor Protection, Equity Returns, and Financial Globalization," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 45(01), pages 135-168, February.
  21. Jun-Koo Kang & Rene M. Stulz, 1995. "Why Is There a Home Bias? An Analysis of Foreign Portfolio Equity Ownership in Japan," NBER Working Papers 5166, National Bureau of Economic Research, Inc.
  22. Joh, Sung Wook, 2003. "Corporate governance and firm profitability: evidence from Korea before the economic crisis," Journal of Financial Economics, Elsevier, Elsevier, vol. 68(2), pages 287-322, May.
  23. Dahlquist, Magnus & Robertsson, Goran, 2001. "Direct foreign ownership, institutional investors, and firm characteristics," Journal of Financial Economics, Elsevier, Elsevier, vol. 59(3), pages 413-440, March.
  24. Alan G. Ahearne & William L. Griever & Francis E. Warnock, 2000. "Information costs and home bias: an analysis of U.S. holdings of foreign equities," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 691, Board of Governors of the Federal Reserve System (U.S.).
  25. McDonald, John F & Moffitt, Robert A, 1980. "The Uses of Tobit Analysis," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 318-21, May.
  26. Mitton, Todd, 2002. "A cross-firm analysis of the impact of corporate governance on the East Asian financial crisis," Journal of Financial Economics, Elsevier, Elsevier, vol. 64(2), pages 215-241, May.
  27. Mariassunta Giannetti & Andrei Simonov, 2006. "Which Investors Fear Expropriation? Evidence from Investors' Portfolio Choices," Journal of Finance, American Finance Association, American Finance Association, vol. 61(3), pages 1507-1547, 06.
  28. Lins, Karl V., 2003. "Equity Ownership and Firm Value in Emerging Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 38(01), pages 159-184, March.
  29. Hali J. Edison & Francis E. Warnock, 2004. "U.S. Investors' Emerging Market Equity Portfolios: A Security-Level Analysis," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 691-704, August.
  30. Faccio, Mara & Lang, Larry H. P., 2002. "The ultimate ownership of Western European corporations," Journal of Financial Economics, Elsevier, Elsevier, vol. 65(3), pages 365-395, September.
  31. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, Elsevier, vol. 20(1-2), pages 293-315, January.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Aggarwal, Reena & Erel, Isil & Ferreira, Miguel & Matos, Pedro, 2011. "Does governance travel around the world? Evidence from institutional investors," Journal of Financial Economics, Elsevier, Elsevier, vol. 100(1), pages 154-181, April.
  2. Kristin J. Forbes, 2008. "Why do Foreigners Invest in the United States?," NBER Working Papers 13908, National Bureau of Economic Research, Inc.
  3. Yohei Okawa & Eric van Wincoop, 2010. "Gravity in International Finance," Working Papers 072010, Hong Kong Institute for Monetary Research.
  4. Kim, Woochan & Sung, Taeyoon & Wei, Shang-Jin, 2011. "Does corporate governance risk at home affect investment choices abroad?," Journal of International Economics, Elsevier, Elsevier, vol. 85(1), pages 25-41, September.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:13721. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.