Premium
Foreign Equity Ownership and Information Asymmetry: Evidence from Japan
Author(s) -
Jiang Li,
Kim JeongBon
Publication year - 2004
Publication title -
journal of international financial management and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.818
H-Index - 37
eISSN - 1467-646X
pISSN - 0954-1314
DOI - 10.1111/j.1467-646x.2004.00107.x
Subject(s) - information asymmetry , equity (law) , business , foreign ownership , earnings , monetary economics , sample (material) , market capitalization , asymmetry , financial economics , economics , accounting , stock market , finance , foreign direct investment , paleontology , chemistry , physics , chromatography , horse , quantum mechanics , biology , political science , law , macroeconomics
Using a large sample of Japanese firms, we investigate whether the level of foreign ownership in a firm is inversely related to information asymmetry between firm (managers) and market (outside investors). Since information asymmetry is not directly observable and, thus, is difficult to measure empirically, our analysis focuses on the link between foreign shareholding and a measurable consequence of information asymmetry; that is, the timing and magnitude of intertemporal return‐earnings associations. The empirical results support our hypothesis, and subsequent tests based on residual foreign ownership show that the relation between foreign ownership and information asymmetry is robust to the addition of various control variables such as market capitalization and cross‐corporate holdings. We also show that foreign investors tend to avoid stocks with high cross‐corporate holdings. Overall, our results suggest that foreign (institutional) investors are likely to be efficient processors of public information and are attracted to Japanese firms with low information asymmetry.