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Local Effects of Foreign Ownership in an Emerging Financial Market: Evidence from Qualified Foreign Institutional Investors in Taiwan
Author(s) -
Huang Roger D.,
Shiu ChengYi
Publication year - 2009
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/j.1755-053x.2009.01048.x
Subject(s) - foreign ownership , business , equity (law) , valuation effects , transparency (behavior) , monetary economics , empirical evidence , valuation (finance) , institutional investor , financial system , accounting , finance , foreign direct investment , economics , corporate governance , philosophy , epistemology , political science , law , macroeconomics
We examine the local effects of equity ownership by investors who are classified as qualified foreign institutional investors in Taiwan. Our empirical analyses reveal a pronounced foreign ownership effect, whereby stocks with high foreign ownership outperform stocks with low foreign ownership. The valuation effect is present even after controlling for firm export, size, or transparency levels. We pursue a performance‐based explanation for this effect and find that foreign ownership is strongly and positively associated with firm R&D expenditures and contemporaneous and subsequent firm performance. Our evidence is consistent with foreign investors who enjoy a long‐run information advantage over domestic investors.