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Which Investors Fear Expropriation? Evidence from Investors' Stock Picking

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  • Giannetti, Mariassunta
  • Simonov, Andrei

Abstract

Using a data-set that provides unprecedented details on individual investors’ stockholdings, we analyse whether investors take into account corporate governance when they select stocks. After controlling for the supply effect via free float and other firm characteristics, we find that all categories of investors who generally enjoy only security benefits (domestic and foreign; institutional and small individual investors) are reluctant to invest in companies with bag corporate governance. In contrast, individuals who have strong connections with the local financial community because they are board members or hold large blocks of at least some listed companies behave differently. They do not care about the expected extraction of private benefits or even prefer to invest in firms where there is more room for it. Overall, the effect of corporate governance on portfolio decisions is more pronounced for small and medium size companies. These findings shed new light on the determinants of investor behaviour, and suggest that it is important to distinguish between investors who enjoy private benefits or access private information and investors who enjoy only security benefits in order to understand portfolio choices.

Suggested Citation

  • Giannetti, Mariassunta & Simonov, Andrei, 2003. "Which Investors Fear Expropriation? Evidence from Investors' Stock Picking," CEPR Discussion Papers 3843, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:3843
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    References listed on IDEAS

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    Cited by:

    1. Benjamin E. Hermalin & Michael S. Weisbach, 2012. "Information Disclosure and Corporate Governance," Journal of Finance, American Finance Association, vol. 67(1), pages 195-234, February.
    2. Rydqvist, Kristian, 2010. "Tax Arbitrage with Risk and Effort Aversion - Swedish Lottery Bonds 1970-1990," SIFR Research Report Series 70, Institute for Financial Research.
    3. Dreber, Anna & Rand, David G. & Garcia, Justin R. & Wernerfelt, Nils & Lum, J. Koji & Zeckhauser, Richard, 2010. "Dopamine and Risk Preferences in Different Domains," Working Paper Series rwp10-012, Harvard University, John F. Kennedy School of Government.

    More about this item

    Keywords

    corporate governance; investor behaviour; portfolio selection; ratio of control to cash flow rights; security benefits;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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