Working Paper: CEPR ID: DP4339
Authors: Cecile Denis; Harry Huizinga
Abstract: High domestic shareholder concentration for publicly-traded firms is a common mechanism to mitigate minority shareholder expropriation in environments of poor investor protection. This offers an explanation of the home bias in share portfolios. An alternative mechanism, common in the case of non-traded firms, is to have a controlling foreign shareholder that may be subject to high international standards of investor protection. This Paper presents a model explaining a high foreign ownership share of non-traded equity in countries with poor investor protection. Empirical evidence supports the hypothesis that foreign ownership of non-traded equity is higher in countries with poor investor protection.
Keywords: Foreign ownership; Nontraded equity; Shareholder protection
JEL Codes: F36; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| foreign ownership (F23) | investor protection (G24) |
| poor investor protection (G24) | foreign ownership (F23) |
| foreign ownership (F23) | capital-labor ratio (J24) |
| foreign ownership (F23) | expropriation risk (H13) |
| poor investor protection (G24) | firm value (G32) |
| foreign ownership (F23) | local investor protection (G24) |