Citation

Discussion Paper Details

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Title: Investor Protection and Equity-Holdings: An Explanation of Two Puzzles?

Author(s): Mariassunta Giannetti and Yrj� Koskinen

Publication Date: August 2003

Keyword(s): home equity bias, investor protection, limited participation, portfolio choice and private benefits of control

Programme Area(s): Financial Economics

Abstract: We develop a model where wealthy investors have an incentive to become controlling shareholders because they can earn additional benefits by expropriating outside shareholders. As a consequence, in countries where minority investor rights are poorly protected, both domestic and foreign portfolio investors have a disincentive to hold stocks. The model implies that the differences in stock market participation rates across countries and the pervasiveness of home equity bias depend on the degree of investor protection. We provide international evidence on stock market participation rates, and holdings of domestic and foreign stocks consistent with the predictions of the model.

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Bibliographic Reference

Giannetti, M and Koskinen, Y. 2003. 'Investor Protection and Equity-Holdings: An Explanation of Two Puzzles?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4017