Foreign portfolio investors before and during a crisis

Using a unique data set, we study the trading behavior of foreign portfolio investors in Korea before and during the currency crisis. The central message is that investors in different categories have different trading patterns. For example, foreign investors outside Korea are more likely to engage in positive feedback trading strategies and are more likely to engage in herding than the branches/subsidiaries of foreign institutions in Korea or foreign individuals living in Korea. This difference in trading behavior is possibly related to the difference in their information. This paper suggests that it may be worth exploring policies that can encourage foreign investors to acquire more information (e.g. by setting up a branch or a subsidiary in the emerging country).     

Foreign Investors' Reaction to Lower Profitability – The Role of Information Asymmetry*

Owners of firms in trouble are more exposed to moral hazard problems than owners of successful firms. Foreign owners who face higher costs to monitor the firm should be more vulnerable to these problems than domestic ones. Consequently, a downward revision in a firm's expected future earnings should push foreign investors to sell their shares to a larger extent than domestic investors. We test this hypothesis on profit warnings issued at the Helsinki Stock Exchange. Our results reveal that in the wake of profit warnings foreign investors will predominantly sell, while domestic investors pick up the net sales by foreigners. Differences in the scale of the foreign investor sell‐out reaction are explained by a number of variables. The most significant one is our proxy for the magnitude of surprise in the warning. The reaction also increases with the degree of perceived information asymmetry for the firm that issued the warning, while foreign members on the firm's board have a moderating impact. By contrast, a number of general corporate governance‐related variables have no statistically significant impact on the reaction.     

福建省利用外资存在的主要问题及因应对策

实证分析表明,20世纪90年代中期以来,福建省利用外资比重持续下降,引资后劲严重不足;同时存在利用外资结构层次较低、资金投向不合理和利用外资质量不高、产业带动作用不强等问题。这既有自身原因,也与国际直接投资的区位选择有关。福建省必须实现利用外资战略和结构转型、创造良好的市场环境与投资环境、加大对外商投资的产业导向力度、促进利用外资方式的多元化,才能扭转利用外资的被动局面。     

The Location Choices of Foreign Investors: A District‐level Analysis in India

This paper analyses the determinants of the location choices made by foreign investors at the district level in India to gauge the relative importance of economic geography factors, local business conditions, institutional conditions and the presence of previous foreign investors. We employ a discrete‐choice model and Poisson regressions to control for the potential violation of the assumption of independence of irrelevant alternatives. Our sample includes about 19,500 foreign investment projects approved in 447 districts from 1991 to 2005. We find that foreign investors strongly prefer locations where other foreign investors are. This effect is significantly positive and robust across different years, sectors and different types of foreign direct investment (FDI). Moreover, path dependence remains significantly positive when controlling for institutional conditions at the state and district level. Foreign investors tend to follow not only previous investors from the same country of origin but also investors from other countries of origin. They are also attracted to industrially diverse locations and to districts with better infrastructure and institutional conditions, although these findings are less robust. Surprisingly, districts in the neighbourhood of large metro areas do not benefit, in terms of attracting more FDI, from having easier access to these markets than remote Indian districts. On the contrary, our results suggest that large metro areas divert FDI projects away from neighbouring districts, thereby perpetuating or even widening the urban–rural divide. We conclude that the concentration of FDI in a few locations could fuel regional divergence in post‐reform India.     

Concentrating Too Hard? Foreign and Corporate Venture Capital Involvement in Syndicates

We investigate the relationship between investment of corporate venture capital (CVC) and foreign venture capital (FVC), and the concentration of investors involved in a financing round. As forms of venture capital distinct from independent venture capital, CVC and FVC can offer different value to new ventures. However, having FVC or CVC investors in the syndicate can also pose additional risks to other investors. We find that a corporate venture capital or a foreign venture capital affiliation is related to lower concentration of investors. Our results suggest that the investors evaluate not only the venture but also their syndicate partners in determining their relative share of round investment.     

Foreign Ownership and Corporate Cash Holdings in Emerging Markets

This article examines the link between foreign ownership and corporate cash holdings. We utilize a data sample of firms listed on the Ho Chi Minh City stock exchange covering the period 2007–2015. Employing different econometric techniques for panel data, we find that higher foreign ownership is associated with more corporate cash holdings. This finding suggests that foreign investors in the Vietnam stock market are subject to precautionary motive and agency motive forcing firms to hold more cash. However, the outcome suggests potential agency problems because managers might subsequently use this cash reserve for their own advantages. These problems are even more pronounced in emerging markets where investor protection mechanism is weak. Accordingly, this highlights the importance of a monitoring mechanism to refrain corporate managers from investing in value‐destroying projects.     

Operating a foreign-invested enterprise in China: challenges for managers and management researchers

In the 20 years since China re-opened to foreign investment, the challenges of doing business in China have become clear. In this article, we review some of the difficulties foreign investors face when running their businesses and suggest ways that management researchers can forge a better understanding of these problems.     

广州外商投资研发中心建设的现状与对策研究

进一步吸引外资研发机构入驻，加强广州外商投资研发中心建设的总体思路应当是：提高认识，积极引进、营造环境、重视实效。在时序安排上，近期应采取以营造创新环境、积极引进为主；中期以广州和深圳为中心创立和健全珠三角科技创新体系为主；远期以采取相应措施为广东科技创新和企业发展服务为主的方针。     

Corruption’s impact on foreign portfolio investment

Corruption has significant effects on a nation’s financial markets through its adverse impact on foreign portfolio investment (FPI). Yet, the effects of corruption on FPI are nonlinear and reverse J-shaped, with intermediate levels of corruption yielding the most negative effects. Highly transparent nations, where a “level playing field” exists between foreign and local investors due to lack of information asymmetries related to corruption, attract the most foreign investment. However, at the margin, very corrupt countries attract more investment than moderately corrupt countries because a “perverse level playing field” in the former countries may put foreigners and locals on an even footing in terms of resolving asymmetric information problems. This nonlinear pattern is consistent with foreign investors’ desire to trade in markets where they are not at an informational disadvantage.     

Motives for foreign direct investment in Oman

This paper empirically examines the factors that influence foreign investors to engage in foreign direct investment (FDI) in Oman. One hundred and six foreign equity ventures participated in the study. The analysis of the data reveals that political and economic stability are the two most important motives for investing in Oman. Contrary to expectations, purchasing power of customers, market size, and availability of low‐cost inputs are the least desirable factors, respectively. The statistical analysis indicates that all motives do not equally appeal to all foreign investors from different countries. © 2003 Wiley Periodicals, Inc.     

Why and how do foreign institutional investors outperform domestic investors in futures trading: Evidence from Taiwan

A unique data set containing all transactions from the Taiwan Futures Exchange allows us to dissect the long-lasting outperformance of foreign institutional investors in this emerging market. We show that foreign institutional investors comprehensively outperform domestic investors in trade directions, submission types, trading counterparties, order sizes, and order aggressiveness. Although submitting passive orders increases the trading profits of each investor group significantly, particularly for foreign institutions, the most passive domestic trades still lose to the most aggressive foreign institutional trades. We suggest that information advantage plays a more important role than order submission strategy in foreign institutional investors’ superior performance.     

Does founder ownership affect foreign investments? Evidence from India

We study the effect of founder ownership on foreign investments for Indian firms. We show that foreign investors underinvest in firms with higher level of founder ownership, since these firms are more vulnerable to information problems and expropriation risk. This effect is particularly stronger when founder ownership exceeds a threshold beyond which founders hold effective control on firms. We exhibit that information problems are the main cause of the relation between foreign investments and founder ownership. This is because the relationship is more pronounced in case of business group firms and firms that are engaged in more earnings management.     

新形势下我国海外直接投资面临的问题及促进对策

我国对外直接投资进入快速增长时期,市场覆盖宽广,结构不断优化,投资主体竞争力日见增强,取得了良好的互利共赢成效显。在海外直接投资呈现明显后发优势的同时,存在的存量规模小、根基浅,风险增大,企业国际化经营水平有待提高,"走出去"人才缺乏等问题开始逐渐显现。为促进企业更好更快地"走出去",我国应抓住有利机遇,深化对外直接投资体制改革,完善社会服务化组织,打造"引进来"与"走出去"的双向互动机制,大力培育投资主体,加强企业与东道国在文化上的融合,加快培养人才。     

How does FX liquidity affect the relationship between foreign ownership and stock liquidity?

This study investigates the roles foreign investors play in a representative emerging market, focusing on the relationship between foreign ownership and stock market liquidity as well as this relationship's response to foreign exchange (FX) liquidity. Our analyses yield three main results. First, the bid–ask spread and price impact of stock trades decrease along with foreign ownership, supporting the view that foreign investors tend to improve stock liquidity. Second, foreign ownership decreases along with a decline in FX liquidity, suggesting that foreign investors care about FX liquidity when determining their stock holdings. Third, stock liquidity increases continuously along with foreign ownership as FX liquidity decreases. Overall, this study's evidence indicates that foreign investors, as liquidity providers, can play a positive role in an emerging economy even when FX liquidity declines.     

Foreign strategic ownership and minority shareholder protection

We show foreign strategic investors provide monitoring protection, by reducing tunneling through intercorporate loans. Further, foreign strategic investors mitigate minority shareholders expropriation through controlling excessive borrowing, whereas firms without foreign-founders channel excessive borrowing to controlling shareholders using intercorporate loans. The monitoring benefits are greater when corporate governance is weaker, and when foreign strategic investors are from English common law countries. Compared to foreign investor proxies typically used in Chinese studies, we use foreign-founder shareholders. As foreign-founders are long-term investors facing high liquidity risk, they are highly motivated to actively monitor and influence firm behaviours.     

Do taxes level the playing field?: How U.S. tax policy affects the investment decisions of foreign affiliates in the United States

Recent research has suggested that tax reforms in the United States in the last decade have increased taxes on U.S. investors, but left foreign investors unscathed, fueling a boom in foreign investment. Other researchers claim that uneven enforcement of U.S. corporate tax laws and the opportunity to shift income to artificially lower tax locations give foreign investors yet another advantage over U.S. domestic firms. Willard examines these theories and shows how reforms can create competitive advantages—or disadvantages—for foreign firms relative to domestic firms.     

Foreign equity flows and the “Size Bias”: Evidence from an emerging stock market

This paper examines foreign investors' equity-level transactions in an emerging stock market, the Istanbul Stock Exchange, for the period 1997–2008 to derive insights into the debate on information asymmetries between domestic and foreign investors and the home bias puzzle. The analysis suggests two important findings. First, foreign investors do not consider the market portfolio of domestic securities as predicted by standard theories of international portfolio diversification. Second, the firm's size and the expected return are central to explain foreign investors' equity trades. The results are consistent with models based upon the hypothesis of differential information between foreign and domestic investors.     

Correlation risk and international portfolio choice

Variance-covariance risk of the exchange rate is highly relevant for international investors. This paper addresses optimal asset allocation with stochastic variances and covariances in a Wishart Affine Stochastic Correlation (WASC) model in incomplete and complete markets. We show that the (hedging) demand for exchange rate variance-covariance risk can differ significantly between international investors. Local correlations with the exchange rate can affect the utilities of international investors differently while the impact of correlations between stocks can be symmetric. Depending on the current local exchange rate correlations domestic investors can benefit more or less than foreign investors from international trading.     

Foreign institutional investors and dividend policy: Evidence from China

This study examines whether foreign institutional investment influences firms’ dividend policies. Using data from all domestically listed nonfinancial firms in China during the period of 2003–2013, we find that foreign shareholding influences dividend decisions and vice versa.Furthermore, changes in dividend payments over time positively affect subsequent changes in foreign shareholding, but the opposite is not true. Our study indicates that foreign institutional investors do not change firms’ future dividend payments once they have made their investment choices in China. Moreover, they self-select into Chinese firms that pay high dividends. Our evidence suggests that in an institutional setting where foreign investors have tightly restricted access to local securities markets and a relatively high risk of expropriation by controlling shareholders exists, firms can use dividends to signal good investment opportunities to foreign investors.     

Pragmatism versus Idealism: Understanding the Negotiating Practices in China and India

China and India are now emerging as major players in the new international economic order. Their economies are growing at a rapid pace, and increasingly foreign investors are flocking to these countries to capitalize on the emerging opportunities. Although economic and social transformation is under way in these societies, this transformation is occurring within a backdrop of an institutional context that is rather different from what is present in Western societies. We draw upon an institutional theory framework to compare and contrast China and India along the dimensions of the regulatory, normative, and the cognitive dimensions. The regulatory dimension refers to the restrictions or lack thereof that might impact foreign investors and/or the manner in which they are implemented. Normative dimension refers to the dominant cultural norms and values present in a given society, while cognitive dimension pertains to the acceptance or the lack thereof of foreign investment. These dimensions are then posited to impact on the negotiating processes that are characteristic of that society. We compare and contrast the negotiating practices in China with that of India and outline strategies through which foreign investors may manage the negotiating process in these countries more effectively. © 2014 Wiley Periodicals, Inc.