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Does the local home bias affect a firm's value? An empirical investigation based on Italian listed firms

Author

Listed:
  • Giulia Baschieri
  • Andrea Carosi
  • Stefano Mengoli

Abstract

The strong bias in favor of local domestic stocks is a well-documented phenomenon in investment portfolios. In light of this empirical evidence, this paper moves on analyzing the effect of such behavior on firms' values. Italian listed firms headquartered in regions with a local high stock demand not offset by a proportional local stock supply are found to benefit, in terms of higher market value, compared to their counterparts. The results are robust to different econometric specifications and are stronger for small and less visible firms, coherently with the assumption that information asymmetries could be one of the main causes driving the local home bias effect.

Suggested Citation

  • Giulia Baschieri & Andrea Carosi & Stefano Mengoli, 2010. "Does the local home bias affect a firm's value? An empirical investigation based on Italian listed firms," Banca Impresa Società, Società editrice il Mulino, issue 1, pages 145-174.
    • Handle: RePEc:mul:jqmthn:doi:10.1435/31908:y:2010:i:1:p:145-174
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