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The role of corporate governance in foreign investments

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  • Praveen Das

Abstract

This article examines whether and how the corporate governance practices of firms affect foreign investors' decisions to invest in their firms. Using a comprehensive data set of foreign equity holdings of mutual funds from 37 countries worldwide, we find that fund managers tend to tilt their portfolio weights towards firms with strong governance systems. Particularly, they invest more in foreign firms with good board characteristics and independent auditors. This result suggests that mutual funds, facing informational disadvantage in their foreign investments, prefer firms with better governance systems as a substitute for their own costly information acquisition and monitoring activities. Furthermore, firms with better governance structures attract more foreign investments irrespective of their country-level investor protection environments.

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  • Praveen Das, 2014. "The role of corporate governance in foreign investments," Applied Financial Economics, Taylor & Francis Journals, vol. 24(3), pages 187-201, February.
    • Handle: RePEc:taf:apfiec:v:24:y:2014:i:3:p:187-201
    DOI: 10.1080/09603107.2013.870650
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    2. Samuel Kwaku Agyei & Nathaniel Kwapong Obuobi & Mohammed Zangina Isshaq & Mac Junior Abeka & John Gartchie Gatsi & Ebenezer Boateng & Emmanuel Kwakye Amoah, 2022. "Country-Level corporate governance and Foreign Portfolio Investments in Sub-Saharan Africa: The moderating role of institutional quality," Cogent Economics & Finance, Taylor & Francis Journals, vol. 10(1), pages 2106636-210, December.
    3. Vidya Sukumara Panicker & Sumit Mitra & Rudra Sensarma, 2016. "Corporate Governance Determinants of FII in Indian IT Firms," Indian Journal of Corporate Governance, , vol. 9(1), pages 1-18, June.
    4. Mohammad Iftekhar Khan & Amit Banerji, 2016. "Corporate Governance and Foreign Investment in India," Indian Journal of Corporate Governance, , vol. 9(1), pages 19-43, June.
    5. Fu, Tong & Leng, Jingsi & Lin, Ming-Tsung & Goodell, John W., 2022. "External investor protection and internal corporate governance: Substitutes or complements for motivating foreign portfolio investment?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).

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