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Foreign equity portfolio flow and corruption: A cross‐country evidence
Author(s) -
Kwabi Frank,
Boateng Agyenim,
Fosu Samuel,
Zhu TingTing,
ChijokeMgbame Marian
Publication year - 2022
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.2138
Subject(s) - foreign portfolio investment , economics , endogeneity , monetary economics , equity (law) , portfolio , stock market , transparency (behavior) , portfolio investment , foreign direct investment , financial economics , financial system , macroeconomics , econometrics , return on investment , paleontology , open ended investment company , horse , production (economics) , biology , political science , law
This study examines the impact of foreign equity portfolio investment on corruption. Employing a large dataset of 44 countries from 2001 to 2015 and three different measures of corruption, our results show that foreign investors from well‐governed countries tend to foster public accountability, reduce asymmetry information and corruption. We find empirical evidence that foreign equity portfolio investment interacts with stock market development and central bank transparency to reduce corruption. Our results suggest that stock market development and central bank transparency are regarded as complementary by international portfolio investors. Further analysis indicates that corruption appears more prevalent in countries where domestic investors dominate the stock market. Our results are robust to endogeneity using dynamic generalized methods of moments (GMM). The findings suggest that attracting foreign equity investors reduces corruption, implying significant benefits for portfolio diversification.