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Institutions, Corporate Governance and Capital Flows

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Abstract

Countries with weaker domestic institutions hold fewer foreign assets and exhibit concentrated corporate ownership. An equilibrium business cycle model of international capital ows with corporate governance frictions between outside investors and insiders explains both phenomena. Investment dynamics under insider control leads relative dividend and labor income for outsiders to be more negatively correlated in countries with weaker institutions. Consequently, outsiders hold more domestic assets to hedge labor income risk. I provide empirical evidence on this hedging demand. Concentrated ownership arises because international diversi cation through the sale of domestic assets by insiders is penalized by lower stock market valuation.

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  • Rahul Mukherjee, 2013. "Institutions, Corporate Governance and Capital Flows," IHEID Working Papers 10-2013, Economics Section, The Graduate Institute of International Studies.
  • Handle: RePEc:gii:giihei:heidwp10-2013
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    Cited by:

    1. Joseph Steinberg, 2018. "International Portfolio Diversification and the Structure of Global Production," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 29, pages 195-219, July.
    2. Coeurdacier, Nicolas & Gourinchas, Pierre-Olivier, 2016. "When bonds matter: Home bias in goods and assets," Journal of Monetary Economics, Elsevier, vol. 82(C), pages 119-137.
    3. Ning Zhang, 2018. "Asset home bias in debtor and creditor countries," Working Papers 2019-11, Business School - Economics, University of Glasgow.
    4. Coeurdacier, Nicolas & Gourinchas, Pierre-Olivier, 2016. "When bonds matter: Home bias in goods and assets," Journal of Monetary Economics, Elsevier, vol. 82(C), pages 119-137.
    5. Vo, Xuan Vinh & Nguyen, Dong Phong & Ho, Viet Tien & Nguyen, Trung Thong, 2017. "Where do the advanced countries invest? An investigation of capital flows from advanced countries to emerging economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 51(C), pages 142-154.
    6. repec:hal:spmain:info:hdl:2441/5djvq5crl99rmab9vc66fecm3h is not listed on IDEAS
    7. Ning Zhang, 2019. "Asset home bias in debtor and creditor countries," 2019 Meeting Papers 850, Society for Economic Dynamics.
    8. Hari Venkatesh & Jyoti Kumari & Gourishankar S. Hiremath & Hiranmoy Roy, 2021. "Foreign Institutional Investors: Fair-Weather Friends or Smart Traders?," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 19(2), pages 291-316, June.
    9. Zhang, Ning, 2019. "Country portfolios under global imbalances," European Economic Review, Elsevier, vol. 119(C), pages 302-317.
    10. Coeurdacier, Nicolas & Gourinchas, Pierre-Olivier, 2016. "When bonds matter: Home bias in goods and assets," Journal of Monetary Economics, Elsevier, vol. 82(C), pages 119-137.
    11. Ning Zhang, 2018. "Asset home bias in debtor and creditor countries," Working Papers 2019_11, Business School - Economics, University of Glasgow.

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    More about this item

    Keywords

    Home bias; institutional quality; corporate governance;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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