Social trust and foreign ownership: Evidence from qualified foreign institutional investors in China
Social trust and foreign ownership: Evidence from qualified foreign institutional investors in China
We investigate the effects of social trust on foreign institutional investors’ equity holdings in listed Chinese firms from 2005 to 2011. We find that social trust embedded in the regional environment is an important factor for the investment decisions of foreign institutional investors. We also find that the proportion and likelihood of foreign ownership increases with the level of social trust. The results support the notion that social trust and trust-related information help mitigate informational barriers in international equity investments. Our results are robust to alternative measures of social trust and a range of model specifications, including instrumental variable estimation. We document that the effects of social trust on foreign ownership diminishes in the presence of organizational learning, better formal institutional development, conservative financial reporting, and asset transparency. We also show that foreign institutional investors from countries with a common law origin are more likely to incorporate trust-related information in their investment decisions.
social trust, foreign institutional investors, foreign ownership, china
1-14
Jin, Dawei
74ff7062-ee04-440e-8955-fa8973c4b994
Wang, Haizhi
46a9c1b1-3259-4fc9-9288-d812b4b4fa59
Wang, Peng
9496fb0a-1c17-4b6b-a755-aedf19bb83e5
Yin, Desheng
d45233e5-7ffd-47b9-a2bd-f09d1a972666
April 2016
Jin, Dawei
74ff7062-ee04-440e-8955-fa8973c4b994
Wang, Haizhi
46a9c1b1-3259-4fc9-9288-d812b4b4fa59
Wang, Peng
9496fb0a-1c17-4b6b-a755-aedf19bb83e5
Yin, Desheng
d45233e5-7ffd-47b9-a2bd-f09d1a972666
Jin, Dawei, Wang, Haizhi, Wang, Peng and Yin, Desheng
(2016)
Social trust and foreign ownership: Evidence from qualified foreign institutional investors in China.
Journal of Financial Stability, 23, .
(doi:10.1016/j.jfs.2016.01.007).
Abstract
We investigate the effects of social trust on foreign institutional investors’ equity holdings in listed Chinese firms from 2005 to 2011. We find that social trust embedded in the regional environment is an important factor for the investment decisions of foreign institutional investors. We also find that the proportion and likelihood of foreign ownership increases with the level of social trust. The results support the notion that social trust and trust-related information help mitigate informational barriers in international equity investments. Our results are robust to alternative measures of social trust and a range of model specifications, including instrumental variable estimation. We document that the effects of social trust on foreign ownership diminishes in the presence of organizational learning, better formal institutional development, conservative financial reporting, and asset transparency. We also show that foreign institutional investors from countries with a common law origin are more likely to incorporate trust-related information in their investment decisions.
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Accepted/In Press date: 13 January 2016
e-pub ahead of print date: 22 January 2016
Published date: April 2016
Keywords:
social trust, foreign institutional investors, foreign ownership, china
Organisations:
Centre of Excellence for International Banking, Finance & Accounting
Identifiers
Local EPrints ID: 387122
URI: http://eprints.soton.ac.uk/id/eprint/387122
ISSN: 1572-3089
PURE UUID: 4099b08f-23af-421b-921f-97f88a47a805
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Date deposited: 09 Feb 2016 14:05
Last modified: 15 Mar 2024 03:51
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Contributors
Author:
Dawei Jin
Author:
Haizhi Wang
Author:
Desheng Yin
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