Institutions, Corporate Governance and Capital Flows

Rahul Mukherjee

No 10-2013, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: Countries with weaker domestic institutions hold fewer foreign assets and exhibit concentrated corporate ownership. An equilibrium business cycle model of international capital ows with corporate governance frictions between outside investors and insiders explains both phenomena. Investment dynamics under insider control leads relative dividend and labor income for outsiders to be more negatively correlated in countries with weaker institutions. Consequently, outsiders hold more domestic assets to hedge labor income risk. I provide empirical evidence on this hedging demand. Concentrated ownership arises because international diversi cation through the sale of domestic assets by insiders is penalized by lower stock market valuation.

Keywords: Home bias; institutional quality; corporate governance (search for similar items in EconPapers)
JEL-codes: F21 F41 G15 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2013-05-21
New Economics Papers: this item is included in nep-dge and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Institutions, Corporate Governance and Capital Flows (2015)
Working Paper: Country Portfolios with Imperfect Corporate Governance (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:gii:giihei:heidwp10-2013

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