Does corporate governance risk at home affect investment choices abroad?

Woochan Kim, Taeyoon Sung, Shang Jin Wei

Research output: Contribution to journalArticle

20 Citations (Scopus)

Abstract

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 these investors should not be lumped together in the analyses of their portfolio choice.

Original languageEnglish
Pages (from-to)25-41
Number of pages17
JournalJournal of International Economics
Volume85
Issue number1
DOIs
Publication statusPublished - 2011 Sep 1

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Investment choice
Investors
Corporate governance
Home country
Portfolio choice
Korea
Ownership and control
Asian financial crisis
Business groups
Ownership
Controlling shareholders
Emerging market economies
Developed countries
Foreign investment
Emerging markets

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Cite this

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Does corporate governance risk at home affect investment choices abroad? / Kim, Woochan; Sung, Taeyoon; Wei, Shang Jin.

In: Journal of International Economics, Vol. 85, No. 1, 01.09.2011, p. 25-41.

Research output: Contribution to journalArticle

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