Market discipline or rent extraction: Impacts of share trading by foreign institutional investors in different corporate governance and investor protection environments

Qiyu Zhang; Xiaoxiang Zhang; Ding Chen; Roger Strange

doi:10.1016/j.irfa.2021.101965

Market discipline or rent extraction: Impacts of share trading by foreign institutional investors in different corporate governance and investor protection environments

Qiyu Zhang, Xiaoxiang Zhang^*, Ding Chen, Roger Strange

^*Corresponding author for this work

Mathematics

Research output: Contribution to journal › Article › peer-review

1 Citation (Scopus)

Abstract

Minority investors' reliance on market discipline can vary with different country-level investor protection and firm-level corporate governance environments, which affect both discipline and rent extraction incentives of foreign institutional investors (FIIs). Using data from 47 economies between 2009 and 2017, we find that firm value increases with FIIs aggressive trading but decreases with FIIs discreet trading. The positive and negative impacts of FIIs trading are strengthened when investor protection is stronger, but weakened when corporate governance is stronger. Our analysis enhances understanding of trade-offs of FIIs trading between discipline and rent extraction in different corporate governance and investor protection environments.

Original language	English
Article number	101965
Number of pages	13
Journal	International Review of Financial Analysis
Volume	79
Early online date	7 Nov 2021
DOIs	https://doi.org/10.1016/j.irfa.2021.101965
Publication status	Published - Jan 2022

Bibliographical note

Funding Information:
We are thankful for the support from British Academy (Grant ID: G2968).

Publisher Copyright:
© 2021

Keywords

Corporate governance
Firm value
Foreign institutional investors
Informed trading
Institutional environment
Investor protection
Market discipline

ASJC Scopus subject areas

Finance
Economics and Econometrics

Access to Document

10.1016/j.irfa.2021.101965Licence: None: All rights reserved

Cite this

@article{b1c3ad3582f148b79fa560c7f573f875,

title = "Market discipline or rent extraction: Impacts of share trading by foreign institutional investors in different corporate governance and investor protection environments",

abstract = "Minority investors' reliance on market discipline can vary with different country-level investor protection and firm-level corporate governance environments, which affect both discipline and rent extraction incentives of foreign institutional investors (FIIs). Using data from 47 economies between 2009 and 2017, we find that firm value increases with FIIs aggressive trading but decreases with FIIs discreet trading. The positive and negative impacts of FIIs trading are strengthened when investor protection is stronger, but weakened when corporate governance is stronger. Our analysis enhances understanding of trade-offs of FIIs trading between discipline and rent extraction in different corporate governance and investor protection environments.",

keywords = "Corporate governance, Firm value, Foreign institutional investors, Informed trading, Institutional environment, Investor protection, Market discipline",

author = "Qiyu Zhang and Xiaoxiang Zhang and Ding Chen and Roger Strange",

note = "Funding Information: We are thankful for the support from British Academy (Grant ID: G2968). Publisher Copyright: {\textcopyright} 2021",

year = "2022",

month = jan,

doi = "10.1016/j.irfa.2021.101965",

language = "English",

volume = "79",

journal = "International Review of Financial Analysis",

issn = "1057-5219",

publisher = "Elsevier",

}

TY - JOUR

T1 - Market discipline or rent extraction

T2 - Impacts of share trading by foreign institutional investors in different corporate governance and investor protection environments

AU - Zhang, Qiyu

AU - Zhang, Xiaoxiang

AU - Chen, Ding

AU - Strange, Roger

PY - 2022/1

Y1 - 2022/1

N2 - Minority investors' reliance on market discipline can vary with different country-level investor protection and firm-level corporate governance environments, which affect both discipline and rent extraction incentives of foreign institutional investors (FIIs). Using data from 47 economies between 2009 and 2017, we find that firm value increases with FIIs aggressive trading but decreases with FIIs discreet trading. The positive and negative impacts of FIIs trading are strengthened when investor protection is stronger, but weakened when corporate governance is stronger. Our analysis enhances understanding of trade-offs of FIIs trading between discipline and rent extraction in different corporate governance and investor protection environments.

AB - Minority investors' reliance on market discipline can vary with different country-level investor protection and firm-level corporate governance environments, which affect both discipline and rent extraction incentives of foreign institutional investors (FIIs). Using data from 47 economies between 2009 and 2017, we find that firm value increases with FIIs aggressive trading but decreases with FIIs discreet trading. The positive and negative impacts of FIIs trading are strengthened when investor protection is stronger, but weakened when corporate governance is stronger. Our analysis enhances understanding of trade-offs of FIIs trading between discipline and rent extraction in different corporate governance and investor protection environments.

KW - Corporate governance

KW - Firm value

KW - Foreign institutional investors

KW - Informed trading

KW - Institutional environment

KW - Investor protection

KW - Market discipline

UR - http://www.scopus.com/inward/record.url?scp=85119257270&partnerID=8YFLogxK

U2 - 10.1016/j.irfa.2021.101965

DO - 10.1016/j.irfa.2021.101965

M3 - Article

AN - SCOPUS:85119257270

SN - 1057-5219

VL - 79

JO - International Review of Financial Analysis

JF - International Review of Financial Analysis

M1 - 101965

ER -

Market discipline or rent extraction: Impacts of share trading by foreign institutional investors in different corporate governance and investor protection environments

Abstract

Bibliographical note

Keywords

ASJC Scopus subject areas

Access to Document

Fingerprint

Cite this