2016 GCGC
CONFERENCE: Stockholm

10-11 June 2016

Are Foreign Investors Locusts? The Long-Term Effects of Foreign Institutional Ownership

Speaker:

Pedro Matos

Associate Professor of Business Administration / Darden school of Business- University of Virginia

Discussant:

Giovanna Nicodano

Professor of Financial Economics / Università di Torino

Abstract:

This paper challenges the view that foreign investors lead firms to adopt a short-term orientation and forgo long-term investment. Using a comprehensive sample of publicly listed firms in 30 countries over the 2001-2010 period, we find instead that greater foreign institutional ownership fosters long-term investment in tangible, intangible, and human capital. Foreign institutional ownership also leads to significant increases in innovation output. We identify these effects by exploiting the exogenous variation in foreign institutional ownership that follows the addition of a firm to the MSCI indices. Our results suggest that foreign institutions exert a disciplinary role on entrenched corporate insiders worldwide.


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