Local and foreign institutional investors, information asymmetries, and state ownership

Xiaoya Ding, Omrane Guedhami, Yang Ni and Jeffrey A. Pittman

Pacific-Basin Finance Journal, 2020, vol. 63, issue C

Abstract: Extant evidence is mixed on whether local investors or foreign investors are better informed. In this study, we shed light on this debate by investigating whether the information asymmetries between local and foreign institutional investors relate to state ownership of publicly listed firms. Prior research documents that state ownership is associated with worse information asymmetry stemming from poor governance structures and financial transparency, implying that investing in firms with state ownership requires more local knowledge and experience. In analyzing Chinese listed firms, we find strong, robust evidence that the information advantage of local versus foreign institutional investors varies with the extent of state ownership: in partially state-owned enterprises (SOEs), local institutional investors have an advantage over foreign institutional investors in predicting future stock returns, whereas this local advantage does not extend to firms with zero state ownership (non-SOEs). In additional analysis, we find evidence that local institutional investors' information advantage in SOEs narrows in the presence of highly independent boards and Big Four auditors.

Keywords: State ownership; Local institutional investors; Foreign institutional investors; Information asymmetries; Monitoring (search for similar items in EconPapers)
JEL-codes: G14 G15 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927538X19307358
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:63:y:2020:i:c:s0927538x19307358

DOI: 10.1016/j.pacfin.2020.101405

Access Statistics for this article

Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

More articles in Pacific-Basin Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().