Foreign Institutional Investment: Is Governance Quality at Home Important?

Abdioğlu, Nida; Khurshed, Arif; Stathopoulos, Konstantinos

doi:10.2139/ssrn.1780340

Cited by 17 publications

(21 citation statements)

References 70 publications

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“…Specifically, investors might be attracted to countries that make communication with the home authorities more difficult. Previous studies show that investors, in general, prefer geographic closeness (Grinblatt and Keloharju, ) as well as countries that speak the same language (Aggarwal et al ., ; Grinblatt and Keloharju, ), share the same legal system (Guiso et al ., ) and offer a strong governance system (Abdioglu et al ., ). We contend that this is not true for tax evaders as the benefits of tax evasion outweigh these desirable characteristics.…”

Section: Background On Tax Evasion and Hypothesesmentioning

confidence: 97%

Tax Havens, Tax Evasion and Tax Information Exchange Agreements in the OECD

Kemme

Parikh

Steigner

2017

Euro Fin Management

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Using data on Foreign Portfolio Investment (FPI), we find a positive relationship between higher tax burden and OECD residents' tax evasion, especially via tax havens. Contrary to established investor preference for certain country characteristics, we find they are less important to tax evaders who value privacy and want to remain undetected by their home tax authorities. We find very limited evidence that OECD Tax Information Exchange Agreements (TIEAS) reduce tax evasion, controlling for other determinants of overall OECD FPI. Without the US in the OECD sample, tax havens play a lesser role and OECD policies appear to make a marginal impact.Keywords: tax haven, tax evasion, foreign portfolio investment, tax information exchange agreements, OECD JEL classification: F38, G38, H26We thank John Doukas and an anonymous referee for very helpful comments and suggestions on an earlier draft.

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Section: Background On Tax Evasion and Hypothesesmentioning

confidence: 97%

Tax Havens, Tax Evasion and Tax Information Exchange Agreements in the OECD

Kemme

Parikh

Steigner

2017

Euro Fin Management

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“…On the other hand, a number of papers claim that “familiarity” (Huberman, , Grinblatt & Keloharju, , or Chan, Covrig, & Ng, ) is the driving force of bilateral asset positions. A result that has been corroborated by cross‐country studies of regulatory differences such as Vlachos () and by specific applications on the role of governance for the financial exposure to the United States (Abdioglu, Khurshed, & Stathopoulos, ) or Korean firms (Kim, Taeyoon, & Wei, ). Our paper will explicitly test the relevance of financial development and institutions “at home” as potential drivers of the exposure towards the euro area.…”

Section: Related Literaturementioning

confidence: 79%

“…The potential relationship between governance “at home” and financial exposure towards the euro area is an open issue, considering also that there are important differences among euro area members (see Table ). It is possible to posit three potential relationships: (a) a negative one, where comparative advantages dominate, similar to the case of financial development (Forbes, ); (b) a positive one, because investors from countries with better governance dislike investment in economies with poor governance (Kim et al, ); (c) a relationship based on the institutional distance, where familiarity matters (Abdioglu et al, ). The level of economic development could proxy for potential omitted variables that are not captured by financial development or governance, therefore, we include per capita GDP as a control variable.…”

Section: Financial Exposure Towards the Euro Area: Methodology And Datamentioning

confidence: 99%

The euro area bias and the role of financial centres

Floreani

Habib

2018

Int. J Fin Econ

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This paper investigates the euro area bias—a stronger preference for euro area securities in the cross‐border portfolio of euro area residents with respect to the prediction of an international finance gravity model. Compared with previous studies, we disentangle different partitions of the euro area and, crucially, isolate euro area financial centres, finding some novel results. First, the euro area bias is not always present and remarkably weak for securities issued by euro area high‐rating economies, those that would be expected to provide better insurance during crisis periods. Second, the extent of the euro area bias could be overstated, because euro area financial centres may conceal round‐tripping flows from euro area low‐rating economies. Finally, in the case of equity, the euro area bias did not decline during the crisis period but, in the case of debt issued by euro area low‐rating economies, unsurprisingly, weakened. The decline in exposure towards euro area debt securities was common among all cross‐border investors, not a specific retrenchment of euro area investors. Overall, our results call for a prudent treatment of cross‐border financial statistics in the presence of a financial centre bias.

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“…Similarly, Abdioglu et al . () identify governance quality in the investor's home country as a factor influencing the decision to invest. Such findings suggest that the nature of governance in home countries influences portfolio choices abroad.…”

Section: Background and Hypotheses Developmentmentioning

confidence: 99%

Does Improved Governance Lead to a Higher Share of FDI in Foreign Equity Investments?

Baek

Maskara

Miller³

2019

Asia-Pac J of Fin Stud

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We investigate the relationship between a country's share of FDI in its foreign equity investments (FDI plus foreign portfolio investment (FPI)) and its governance quality relative to that of the investor's country. Poorly governed countries are often advised to improve their governance structures to attract FDI. Contrary to this prescription, we find that as the governance quality of poor-governance host countries improves, FDI share of foreign equity investments declines, because of a relatively higher increase in FPI than FDI. Only after a sustained and meaningful improvement in governance quality, do low-quality host countries reap the benefits of attracting greater FDI from investors in high-quality countries.

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Foreign Institutional Investment: Is Governance Quality at Home Important?

Cited by 17 publications

References 70 publications

Tax Havens, Tax Evasion and Tax Information Exchange Agreements in the OECD

Tax Havens, Tax Evasion and Tax Information Exchange Agreements in the OECD

The euro area bias and the role of financial centres

Does Improved Governance Lead to a Higher Share of FDI in Foreign Equity Investments?

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