Behavioural finance : corporate governance and home bias effect - a study of 5 Asian countries.

Abstract

In our paper, we show that there is a close relation between corporate governance, particularly in the area of share-holder ownership concentration, and the portfolios held by foreign (non-U.S.) and U.S. investors. We establish that shares held by large controlling stakeholders are in controlling blocks, so that only a fraction of shares issued by firms in the country can be freely traded and held by portfolio investors. We use firm-level share ownership data for five Asian countries (Singapore, Hong Kong, Taiwan, Republic of Korea (South) and Malaysia), to test whether the prevalence of closely-held firms in most countries helps explain why in countries with no restriction of large share coalitions, exhibit a home bias in share holdings, and whether U.S. investors under-weigh these five countries in their portfolio. In close reference to the Dahlquist et al paper on Corporate Governance and the Home Bias, we conduct similar regression tests using firm-level share ownership data in the five countries. Our results confirm the importance of the float portfolio as a determinant of the holdings of U.S. portfolio investors and other non-Domestic portfolio investors. In addition, we conduct a robustness test on the un-accounted share ownership data, which we collected from Thomson One Financial Database. The results of the robustness test, had led us to understand the importance of our assumptions on the unknown variables for our tests.