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Corporate Governance and the Home Bias

  • Lee Pinkowitz
  • Rene M. Stulz
  • Rohan Williamson

In most countries, many of the largest corporations are controlled by large shareholders. We show that, under reasonable assumptions, this stylized fact implies that portfolio holdings of U.S. investors should exhibit a home bias in equilibrium. We construct an estimate of the world portfolio of shares available to investors who are not controlling shareholders. This available world portfolio differs sharply from the world market portfolio. In regressions explaining the portfolio weights of U.S. investors, the world portfolio of available shares has a positive significant coefficient but the world market portfolio has no additional explanatory power. This result holds when we control for country characteristics.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8680.

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Date of creation: Dec 2001
Date of revision:
Publication status: published as Pinkowitz, Lee, Rene M. Stulz, Magnus Dahlquist, and Rohan Williamson. "Corporate Governance and the Home Bias." Journal of Financial and Quantitative Analysis 38, 1 (2003): 87-110.
Handle: RePEc:nbr:nberwo:8680
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