Foreign institutional investors, information asymmetries, and asset valuation in emerging markets

Yıldız, Yılmaz

doi:10.1016/j.ribaf.2021.101381

Cited by 14 publications

(15 citation statements)

References 82 publications

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“…When the marginal return on investment is equal to the sum of its final cost and the cost of capital adjustment, the optimal level of investment is gained. However, the firm's actual investment always deviates from the optimal state due to friction in capital markets such as external financing costs, conflict of interest between managers and stakeholders, and information asymmetry (Yildiz 2021).…”

Section: Investment Efficiencymentioning

confidence: 99%

Institutional Ownership and Investment Efficiency: Evidence from Iran

Moradi

Yazdifar

Eskandar

et al. 2022

JRFM

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Investment efficiency shows how well a company invests its assets. Although institutional shareholders play undeniable roles in companies, it is not clear whether they are able to monitor managers and make investment decisions or not. This study gives answers to stakeholders, addresses concerns about the effect of the owners on investment efficiency, and aims to add to the literature on emerging markets by investigating the relationship in Iran, a different environment from developed ones. Based on monitoring power, the shareholders are divided into two types: active and passive ones. Investment problems are classified into two types: over- and under-investment problems. The sample consists of 101 firms listed on the Tehran Stock Exchange between 2010 and 2016. Some regression models are used. The results illustrated that institutional owners have a positive effect on investment efficiency and decrease both over- and under-investment problems and so, the efficient monitoring school is approved. Additionally, active ones are positively correlated with investment efficiency and decrease both investment inefficiency problems. Institutional ownership is the cause of investment efficiency, not the reverse. Based on findings, in emerging markets like Iran’s market, investors are recommended to give notice to the level of active ownership in firms; ownership structure is a good sign of efficiency.

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Section: Investment Efficiencymentioning

confidence: 99%

Institutional Ownership and Investment Efficiency: Evidence from Iran

Moradi

Yazdifar

Eskandar

et al. 2022

JRFM

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“…Although, a priori, it might seem that being an ICSID signatory is only relevant for foreign companies, results confirm that it also exerts a positive effect on firm performance for national companies. In fact, when a country helps to reduce information asymmetries to foreign investors it also benefits national companies by encouraging greater competition and innovation (Khan et al, 2021;Crespi et al, 2014), which ultimately enhances firm performance (Yildiz, 2021). On the other hand, when a country increases the number of cases registered this also has a negative effect on firm performance for national companies.…”

Section: Additional Analysesmentioning

confidence: 99%

Formal institutions, ICSID arbitration and firm performance: evidence from Latin America

et al. 2022

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This paper analyzes how a country’s formal institutional quality impacts the performance of listed companies across different Latin American countries (namely, Argentina, Brazil, Colombia, Mexico, Peru, and Chile) and industries. Latin America provides a unique setting to address this question due to the region’s high institutional instability. The sample consists of 571 large listed companies, with a total of 8576 observations, for the period 2004–2019. Results show that the quality of a country’s formal institutions is positively related to firm performance, measured through two alternative variables (ROA and Tobin’s Q). Additionally, countries that are signatories of the ICSID agreement provide companies with a more stable environment in which to do business, which ultimately has a positive impact on their performance. However, as the number of cases recorded before the ICSID increases, the relationship turns negative. The paper provides a more comprehensive understanding of formal institutions by considering six alternative governance dimensions. Moreover, international arbitration is found to be a substitute for formal institutions in Latin American countries.

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“…For example, the Indonesian government arranges investment-specific guidelines for foreign investors to reduce asymmetric information so foreign investors will be interested in investing in Indonesia (Ministry of Investment, 2021). The primary determinant is foreign investors have a more sensitive tendency toward corporate governance issues, so they need complete information to support the investment decisions made (Chen et al, 2010;Yildiz, 2021). Furthermore, because of limited surveillance, foreign investors are more like corporates in countries with a high enforcement level, thus making foreign investors feel safer investing (Leuz, Lins, dan Warnock 2009) Resoure: (KSEI, 2021) So far, the corporate ownership structure changes more explained with agency theory (Areneke et al, 2022;Yildiz, 2021).…”

Section: Introductionmentioning

confidence: 99%

“…The primary determinant is foreign investors have a more sensitive tendency toward corporate governance issues, so they need complete information to support the investment decisions made (Chen et al, 2010;Yildiz, 2021). Furthermore, because of limited surveillance, foreign investors are more like corporates in countries with a high enforcement level, thus making foreign investors feel safer investing (Leuz, Lins, dan Warnock 2009) Resoure: (KSEI, 2021) So far, the corporate ownership structure changes more explained with agency theory (Areneke et al, 2022;Yildiz, 2021). Based on agency theory, a conflict of interest arises between the agent and the principal, where the principal expects that the agent can carry out what is expected by the principal (Jensen, 1986).…”

Section: Introductionmentioning

confidence: 99%

“…The research is trying to complete the gap of research because anecdotal evidence about the incident decline of a foreign ownership ratio in Indonesia which haven't been researched by researchers previously, especially in Indonesia (Driffield dkk., 2016;Rhee & Wang, 2009;Shaban & James, 2018). Developing literature about foreign ownership structure decline in developing countries tends to be less researched (Areneke et al, 2022;Driffield et al, 2016;Su, 2017;Yildiz, 2021). Therefore, the research is trying to give a different view covered by the property right theory.…”

Section: Introductionmentioning

confidence: 99%

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Corporate governance, political connection, and foreign ownership control: The property rights theory perspective

Pranesti

Fajar²,

Larasati³

et al. 2023

JIFA

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Over time, the reduction in foreign ownership in Indonesia has prompted questions about its causes. The country is still perceived to have low corporate governance standards and a high level of political connections. The aim of this study is to investigate whether corporate governance and political connections have an impact on foreign ownership. The study utilized manufacturing company data from 2018 to 2021, comprising 48 companies with 192 observations. The findings of the study indicate that foreign investors tend to decrease their investment in companies with strong corporate governance. The study reveals that a firm with robust corporate governance becomes an attractive target for local investors to acquire ownership. The findings provide evidence of a decrease in the proportion of foreign investors in such companies. Instead, foreign investors continue to view companies with political connections as potential concern for surveillance. This study uses another argument to explain how the structure of foreign ownership in Indonesia uses the property right theory. Policy-making authorities can make policies to support corporate governance arrangements and support to reduce the level of corruption so as to support the investment climate in Indonesia. This research can be used as a new insight to understand how the investment climate is, but has not considered aspects related to environmental and social issues

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Foreign institutional investors, information asymmetries, and asset valuation in emerging markets

Cited by 14 publications

References 82 publications

Institutional Ownership and Investment Efficiency: Evidence from Iran

Institutional Ownership and Investment Efficiency: Evidence from Iran

Formal institutions, ICSID arbitration and firm performance: evidence from Latin America

Corporate governance, political connection, and foreign ownership control: The property rights theory perspective

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