IDEAS home Printed from https://ideas.repec.org/a/eee/jbrese/v122y2021icp14-23.html
   My bibliography  Save this article

A tale of two forms of proximity: Geography and market

Author

Listed:
  • Chung, Chune Young
  • Sul, Hong Kee
  • Wang, Kainan

Abstract

The existing research on institutional distance fails to distinguish between geographic and market proximity when investigating the relationship between proximity and investors’ performance. We utilize a unique empirical setting—Chinese firms whose stocks are listed on U.S. exchanges—to examine the stand-alone effects of these two forms of proximity on equity performance. We find that institutional ownership predicts stock returns in the case of U.S. and Chinese (Hong Kong) institutions, but this relationship does not hold for institutions from other countries. These findings are consistent with the hypothesis that U.S. institutions benefit from a market proximity advantage, whereas Chinese institutions have a geographic proximity advantage.

Suggested Citation

  • Chung, Chune Young & Sul, Hong Kee & Wang, Kainan, 2021. "A tale of two forms of proximity: Geography and market," Journal of Business Research, Elsevier, vol. 122(C), pages 14-23.
    • Handle: RePEc:eee:jbrese:v:122:y:2021:i:c:p:14-23
    DOI: 10.1016/j.jbusres.2020.08.060
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0148296320305634
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jbusres.2020.08.060?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Albuquerque, Rui & H. Bauer, Gregory & Schneider, Martin, 2009. "Global private information in international equity markets," Journal of Financial Economics, Elsevier, vol. 94(1), pages 18-46, October.
    2. Paul A. Gompers & Andrew Metrick, 2001. "Institutional Investors and Equity Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 229-259.
    3. Bok Baik & Jun-Koo Kang & Jin-Mo Kim & Joonho Lee, 2013. "The liability of foreignness in international equity investments: Evidence from the US stock market," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 44(4), pages 391-411, May.
    4. Xuemin (Sterling) Yan & Zhe Zhang, 2009. "Institutional Investors and Equity Returns: Are Short-term Institutions Better Informed?," The Review of Financial Studies, Society for Financial Studies, vol. 22(2), pages 893-924, February.
    5. Allen, Franklin & Qian, Jun & Qian, Meijun, 2005. "Law, finance, and economic growth in China," Journal of Financial Economics, Elsevier, vol. 77(1), pages 57-116, July.
    6. Vicentiu Covrig & Sie Ting Lau & Lilian Ng, 2006. "Do domestic and foreign fund managers have similar preferences for stock characteristics? A cross-country analysis," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 37(3), pages 407-429, May.
    7. Alex Edmans, 2009. "Blockholder Trading, Market Efficiency, and Managerial Myopia," Journal of Finance, American Finance Association, vol. 64(6), pages 2481-2513, December.
    8. Brennan, Michael J & Cao, H Henry, 1997. "International Portfolio Investment Flows," Journal of Finance, American Finance Association, vol. 52(5), pages 1851-1880, December.
    9. Lewellen, Jonathan, 2011. "Institutional investors and the limits of arbitrage," Journal of Financial Economics, Elsevier, vol. 102(1), pages 62-80, October.
    10. Levy, Haim & Sarnat, Marshall, 1970. "International Diversification of Investment Portfolios," American Economic Review, American Economic Association, vol. 60(4), pages 668-675, September.
    11. Harald Hau & Helene Rey, 2008. "Home Bias at the Fund Level," American Economic Review, American Economic Association, vol. 98(2), pages 333-338, May.
    12. Gordon J. Alexander & Gjergji Cici & Scott Gibson, 2007. "Does Motivation Matter When Assessing Trade Performance? An Analysis of Mutual Funds," The Review of Financial Studies, Society for Financial Studies, vol. 20(1), pages 125-150, January.
    13. Bailey, Warren & Mao, Connie X. & Sirodom, Kulpatra, 2007. "Investment restrictions and the cross-border flow of information: Some empirical evidence," Journal of International Money and Finance, Elsevier, vol. 26(1), pages 1-25, February.
    14. Roger D. Huang & Cheng‐Yi Shiu, 2009. "Local Effects of Foreign Ownership in an Emerging Financial Market: Evidence from Qualified Foreign Institutional Investors in Taiwan," Financial Management, Financial Management Association International, vol. 38(3), pages 567-602, September.
    15. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
    16. Andrew Ang & Robert J. Hodrick & Yuhang Xing & Xiaoyan Zhang, 2006. "The Cross‐Section of Volatility and Expected Returns," Journal of Finance, American Finance Association, vol. 61(1), pages 259-299, February.
    17. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-226, May.
    18. Grinblatt, Mark & Keloharju, Matti, 2000. "The investment behavior and performance of various investor types: a study of Finland's unique data set," Journal of Financial Economics, Elsevier, vol. 55(1), pages 43-67, January.
    19. Kenneth A. Froot & Tarun Ramadorai, 2008. "Institutional Portfolio Flows and International Investments," The Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 937-971, April.
    20. Chang Liu & Chune Young Chung & Hong Kee Sul & Kainan Wang, 2018. "Does hometown advantage matter? The case of institutional blockholder monitoring on earnings management in Korea," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 49(2), pages 196-221, February.
    21. Chune Young Chung & Chang Liu & Kainan Wang & Blerina Bela Zykaj, 2015. "Institutional Monitoring: Evidence from the F-Score," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 42(7-8), pages 885-914, September.
    22. Alex Edmans, 2014. "Blockholders and Corporate Governance," Annual Review of Financial Economics, Annual Reviews, vol. 6(1), pages 23-50, December.
    23. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    24. Park, Tae-Jun & Lee, Youngjoo & Song, Kyojik “Roy”, 2014. "Informed trading before positive vs. negative earnings surprises," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 228-241.
    25. Mitchell A. Petersen, 2009. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," The Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 435-480, January.
    26. Froot, Kenneth A. & O'Connell, Paul G. J. & Seasholes, Mark S., 2001. "The portfolio flows of international investors," Journal of Financial Economics, Elsevier, vol. 59(2), pages 151-193, February.
    27. David Schumacher, 2018. "Home Bias Abroad: Domestic Industries and Foreign Portfolio Choice," The Review of Financial Studies, Society for Financial Studies, vol. 31(5), pages 1654-1706.
    28. Ayers, Benjamin C. & Ramalingegowda, Santhosh & Eric Yeung, P., 2011. "Hometown advantage: The effects of monitoring institution location on financial reporting discretion," Journal of Accounting and Economics, Elsevier, vol. 52(1), pages 41-61, June.
    29. Kavous Ardalan, 2019. "Equity Home Bias: A Review Essay," Journal of Economic Surveys, Wiley Blackwell, vol. 33(3), pages 949-967, July.
    30. Kang, Jun-Koo & Stulz, Rene M., 1997. "Why is there a home bias? An analysis of foreign portfolio equity ownership in Japan," Journal of Financial Economics, Elsevier, vol. 46(1), pages 3-28, October.
    31. Kim, Incheol & Miller, Steve & Wan, Hong & Wang, Bin, 2016. "Drivers behind the monitoring effectiveness of global institutional investors: Evidence from earnings management," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 24-46.
    32. Ferreira, Miguel A. & Matos, Pedro, 2008. "The colors of investors' money: The role of institutional investors around the world," Journal of Financial Economics, Elsevier, vol. 88(3), pages 499-533, June.
    33. Chen, Xia & Harford, Jarrad & Li, Kai, 2007. "Monitoring: Which institutions matter?," Journal of Financial Economics, Elsevier, vol. 86(2), pages 279-305, November.
    34. Kalok Chan & Vicentiu Covrig & Lilian Ng, 2005. "What Determines the Domestic Bias and Foreign Bias? Evidence from Mutual Fund Equity Allocations Worldwide," Journal of Finance, American Finance Association, vol. 60(3), pages 1495-1534, June.
    35. Mark S. Seasholes & Ning Zhu, 2010. "Individual Investors and Local Bias," Journal of Finance, American Finance Association, vol. 65(5), pages 1987-2010, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sanggyu Kang & Chune Young Chung & Amirhossein Fard, 2024. "Does geographic or market proximity matter? Evidence from institutional investor monitoring on earnings attributes in US cross‐listed stocks," Bulletin of Economic Research, Wiley Blackwell, vol. 76(2), pages 443-469, April.
    2. Oh, Hyunjin & Chung, Chune Young & Fard, Amirhossein, 2023. "Tacit vigilance in an emerging economy: An institution-based perspective of passive blockholder monitoring," Research in International Business and Finance, Elsevier, vol. 64(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chung, Chune Young & Song, Jun Myung, 2024. "Institutional investors by nationality and long-term investor value appropriation," Research in International Business and Finance, Elsevier, vol. 67(PB).
    2. Sanggyu Kang & Chune Young Chung & Amirhossein Fard, 2024. "Does geographic or market proximity matter? Evidence from institutional investor monitoring on earnings attributes in US cross‐listed stocks," Bulletin of Economic Research, Wiley Blackwell, vol. 76(2), pages 443-469, April.
    3. Kang, Sanggyu & Chung, Chune Young & Kim, Dong-Soon, 2019. "The effect of institutional blockholders' short-termism on firm innovation: Evidence from the Korean market," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    4. Chung, Chune Young & Kim, Hye Seok & Liu, Chang, 2024. "Institutional monitoring on corporate earnings: Evidence from U.S. Cross-listed Firms," The North American Journal of Economics and Finance, Elsevier, vol. 70(C).
    5. Oh, Hyunjin & Chung, Chune Young & Fard, Amirhossein, 2023. "Tacit vigilance in an emerging economy: An institution-based perspective of passive blockholder monitoring," Research in International Business and Finance, Elsevier, vol. 64(C).
    6. Chang Liu & Chune Young Chung & Hong Kee Sul & Kainan Wang, 2018. "Does hometown advantage matter? The case of institutional blockholder monitoring on earnings management in Korea," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 49(2), pages 196-221, February.
    7. Ferreira, Miguel A. & Matos, Pedro & Pereira, João Pedro & Pires, Pedro, 2017. "Do locals know better? A comparison of the performance of local and foreign institutional investors," Journal of Banking & Finance, Elsevier, vol. 82(C), pages 151-164.
    8. Eduard Gaar & David Scherer & Dirk Schiereck, 2022. "The home bias and the local bias: A survey," Management Review Quarterly, Springer, vol. 72(1), pages 21-57, February.
    9. Simon Döring & Wolfgang Drobetz & Sadok El Ghoul & Omrane Guedhami & Henning Schröder, 2021. "Institutional investment horizons and firm valuation around the world," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 52(2), pages 212-244, March.
    10. Ding, Xiaoya & Guedhami, Omrane & Ni, Yang & Pittman, Jeffrey A., 2020. "Local and foreign institutional investors, information asymmetries, and state ownership," Pacific-Basin Finance Journal, Elsevier, vol. 63(C).
    11. Li Jiang & Jeong-Bon Kim & Lei Pang, 2018. "Foreign institutional investors and stock return comovement," Frontiers of Business Research in China, Springer, vol. 12(1), pages 1-31, December.
    12. Rahim, Imad & Mian, Rehman U. & Mian, Affan, 2024. "Country-level heterogeneity in foreign institutional investment horizons and firm value," International Review of Financial Analysis, Elsevier, vol. 92(C).
    13. Mian, Rehman U. & Irfan, Saadia & Mian, Affan, 2023. "Foreign institutional investment horizon and earnings management: Evidence from around the world," International Review of Financial Analysis, Elsevier, vol. 86(C).
    14. Chune Young Chung & Sang Jun Cho & Doojin Ryu & Doowon Ryu, 2019. "Institutional blockholders and corporate social responsibility," Asian Business & Management, Palgrave Macmillan, vol. 18(3), pages 143-186, July.
    15. Neupane, Biwesh & Thapa, Chandra & Marshall, Andrew & Neupane, Suman, 2021. "Mimicking insider trades," Journal of Corporate Finance, Elsevier, vol. 68(C).
    16. Daeheon Choi & Paul Moon Sub Choi & Joung Hwa Choi & Chune Young Chung, 2020. "Corporate Governance and Corporate Social Responsibility: Evidence from the Role of the Largest Institutional Blockholders in the Korean Market," Sustainability, MDPI, vol. 12(4), pages 1-15, February.
    17. Mishra, Anil V. & Ratti, Ronald A., 2011. "Governance, monitoring and foreign investment in Chinese companies," Emerging Markets Review, Elsevier, vol. 12(2), pages 171-188, June.
    18. Baig, Ahmed & DeLisle, R. Jared & Zaynutdinova, Gulnara R., 2022. "Index mutual fund ownership and financial reporting quality," Research in International Business and Finance, Elsevier, vol. 62(C).
    19. Miguel A. Ferreira & Massimo Massa & Pedro Matos, 2018. "Investor–Stock Decoupling in Mutual Funds," Management Science, INFORMS, vol. 64(5), pages 2144-2163, May.
    20. Kim, Kyung Soon & Chung, Chune Young & Liu, Chang, 2020. "Is institutional monitoring time-varying? Evidence from the Korean market," Finance Research Letters, Elsevier, vol. 32(C).

    More about this item

    Keywords

    Chinese cross-listed stock; Financial institution; Geographic proximity; Market proximity; Information asymmetry;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbrese:v:122:y:2021:i:c:p:14-23. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbusres .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.