Administration of Foreign Share Ownership Restrictions

Sie Ting Lau and Thomas H. Mclnish
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Sie Ting Lau: Nanyang Technological University, Singapore
Thomas H. Mclnish: The University of Memphis, Tennessee, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 1998, vol. 01, issue 04, 497-509

Abstract: In many cases foreign ownership restrictions have led to the division of the shares of a firm's stock into foreign and local tranches traded separately. We examine two problems connected with the separation of the market for foreign and local shares. We show that when separate trading in the foreign and local shares begins liquidity is reduced, especially for local investors. Further, we document a number of cases of uncompensated wealth transfers from foreign to domestic investors. To address these two problems, we propose a system in which all shares are traded in a single market and foreign holders are required to purchase Foreign Ownership Registration Rights (FORRs) in a separate market. We argue that this system will increase liquidity for both local and foreign investors. We also propose a number of rules concerning the way these restrictions are administered. These rules are designed to reduce agency problems such as uncompensated wealth transfers and to increase fairness.

JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 1998
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DOI: 10.1142/S0219091598000296

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