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Do Foreigners Invest Less in Poorly Governed Firms?

In: Corporate Governance

  • Christian Leuz
  • Karl V. Lins
  • Francis E. Warnock

As domestic sources of outside finance are limited in many countries around the world, it is important to understand factors that influence whether foreign investors provide capital to a country's firms. We study 4,409 firms from twenty-nine countries to assess whether and why concerns about corporate governance result in fewer foreign holdings. We find that foreigners invest less in firms that reside in countries with poor outsider protection and disclosure and have ownership structures that are conducive to governance problems. This effect is particularly pronounced when earnings are opaque, indicating that information asymmetry and monitoring costs faced by foreign investors likely drive the results. The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.

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This chapter was published in:
  • Michael Weisbach, 2010. "Corporate Governance," NBER Books, National Bureau of Economic Research, Inc, number weis10-1, September.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12192.
    Handle: RePEc:nbr:nberch:12192
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