Foreign investors, agency problems and capital allocation efficiency: From the perspective of QFII shareholding

Wenyu Gao, Xudong Zhuang, Yu Wu, Yanxiang Xie and Yunchao Hu

International Review of Financial Analysis, 2025, vol. 105, issue C

Abstract: This study investigates the impact of foreign investors on corporate capital allocation efficiency from the perspective of China's Qualified Foreign Institutional Investor (QFII) shareholding. We find that QFII shareholding improves corporate capital allocation efficiency. The influence mechanism analysis reveals that QFII shareholding improves capital allocation efficiency by alleviating three types of agency problems, namely those between shareholder-manager, majority-minority shareholder and shareholder-creditor. From the perspective of heterogeneity across firms, industries and regions, the positive effect of QFII shareholding on corporate capital allocation efficiency is more pronounced in firms with higher ownership balance or diversification, those operating in non-high-tech or less competitive industries, and those located in regions with stronger investor protection. These findings not only provide empirical evidence for understanding the relationship between the introduction of foreign investors and economic efficiency, but also offer valuable insights for emerging markets in achieving domestic capital liberalization while ensuring efficient capital allocation.

Keywords: Qualified Foreign Institutional Investor; Agency problem; Capital allocation efficiency; Capital market liberalization (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:105:y:2025:i:c:s1057521925005290

DOI: 10.1016/j.irfa.2025.104442

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