NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

How Does Corporate Governance Risk at Home Affect Investment Choices Abroad?

Woochan Kim, Taeyoon Sung, Shang-Jin Wei

NBER Working Paper No. 13721
Issued in January 2008
NBER Program(s):   CF   IFM

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.

download in pdf format
   (413 K)

email paper

This paper is available as PDF (413 K) or via email.

This paper was revised on December 5, 2011

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w13721

Published: Woochan Kim, Taeyoon Sung, Shang-Jin Wei Does corporate governance risk at home affect investment choices abroad? ☆ Journal of International Economics, Volume 85, Issue 1, September 2011, Pages 25–41

Users who downloaded this paper also downloaded these:
Tong and Wei w15207 The Composition Matters: Capital Inflows and Liquidity Crunch during a Global Economic Crisis
Wei and Zhang w15093 The Competitive Saving Motive: Evidence from Rising Sex Ratios and Savings Rates in China
Chinn and Wei w14420 A Faith-based Initiative: Does a Flexible Exchange Rate Regime Really Facilitate Current Account Adjustment?
Claessens, Tong, and Wei w17360 From the Financial Crisis to the Real Economy: Using Firm-level Data to Identify Transmission Channels
Koopman, Wang, and Wei w18579 Tracing Value-added and Double Counting in Gross Exports
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us