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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 and Roger Strange

International Review of Financial Analysis, 2022, vol. 79, issue C

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: Foreign institutional investors; Informed trading; Corporate governance; Market discipline; Institutional environment; Investor protection; Firm value (search for similar items in EconPapers)
JEL-codes: G14 G32 G34 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.irfa.2021.101965

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