Corporate Governance and International Portfolio Investment in Equities

Abstract

Previous articles examined international portfolio investments either by

a single investor or to a single destination. We examine the determinants of

international equity investment patterns using multiple pairs of source and

host countries. Specifically, we investigate how the corporate governance

institutions in investing and recipient countries are associated to equity

investment and divestiture using the 2006 and 2008 Coordinated Portfolio

Investment Survey (CPIS) data. We find that source countries buy equities

in host countries with strong governance more than in host countries

with weak governance. We also find that investors from strong governance

countries disproportionately sell more their equities in weak governance

countries during the recent economic crisis. However, investors from weak

governance countries do not demonstrate such divestiture pattern.