SIFR Research Report Series, Institute for Financial Research
Corporate Governance and the Home Bias
(), Lee Pinkowitz, René M. Stulz and Rohan Williamson
Abstract: This paper shows that there is a close relation between
corporate governance and the portfolios held by investors. Most firms in
countries with poor investor protection are controlled by large
shareholders, so that only a fraction of the shares issued by firms in
these countries can be freely traded and held by portfolio investors. We
show that the prevalence of closely-held firms in most countries helps
explain why these countries exhibit a home bias in share holdings and why
U.S. investors underweight foreign countries in their portfolios. We
construct an estimate of the world portfolio of shares available to
investors who are not controlling shareholders (the world float portfolio).
The world float portfolio differs sharply from the world market portfolio.
In regression explaining the portfolio weights of U.S. investors, the world
float portfolio has a positive significant coefficient but the world market
portfolio has no additional explanatory power. This result holds when we
control for country characteristics. An analysis of foreign investor
holdings at the firm level for Sweden confirms the importance of the float
portfolio as a determinant of these holdings.
Keywords: World float portfolio; Portfolio choice; Closely held shares; (follow links to similar papers)
JEL-Codes: G11; G12; G15; G32; G34; (follow links to similar papers)
44 pages, November 15, 2002
Before downloading any of the electronic versions below
you should read our statement on
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Full text versions of the paper:
Questions (including download problems) about the papers in this series should be directed to Anki Helmer ()
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Design by Joachim Ekebom