How Does Corporate Governance Risk at Home Affect Investment Choices Abroad? / Woochan Kim, Taeyoon Sung, Shang-Jin Wei.

Format:

Book

Author/Creator:

Kim, Woochan.

Contributor:

National Bureau of Economic Research.

Sung, Taeyoon.

Wei, Shang-Jin.

Series:

Working Paper Series (National Bureau of Economic Research) no. w13721.

NBER working paper series no. w13721

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2008.

Summary:

Disparity between control and ownership rights gives rise to the risk of tunneling by the controlling shareholder, and is prevalent in many emerging market economies and present in some developed countries. At the same time, international investors come from different countries whose home markets are characterized by varying degrees of control-ownership disparity. This paper studies whether this difference in investors' home countries affects their portfolio choice in an emerging market. It combines two unique data sets on ownership and control in business groups, and investor-stock level foreign investment in Korea. A key finding is that, investors from low-disparity countries disfavor high-disparity stocks in Korea, but investors from high-disparity countries are indifferent. Moreover, investors from low-disparity countries became averse to disparity only after the Asian financial crisis. These results suggest that the nature of corporate governance in international investors' home countries affects their portfolio choice abroad, and therefore that these investors should not be lumped together in the analyses of their portfolio choice.

Notes:

Print version record

January 2008.