Foreign equity portfolio flow and corruption: A cross-country evidence

Date

2020-07-24

Advisors

Journal Title

Journal ISSN

ISSN

Volume Title

Publisher

Wiley

Type

Article

Peer reviewed

Yes

Abstract

This study examines the impact of foreign equity portfolio investment on corruption. Employing a large dataset of 44 countries from 2001 to 2015 and three different measures of corruption, our results show that foreign investors from well-governed countries tend to foster public accountability, reduce asymmetry information and corruption. We find empirical evidence that foreign equity portfolio investment interacts with stock market development and central bank transparency to reduce corruption. Our results suggest that stock market development and central bank transparency are regarded as complementary by international portfolio investors. Further analysis indicates that corruption appears more prevalent in countries where domestic investors dominate the stock market. Our results are robust to endogeneity using dynamic generalized methods of moments (GMM). The findings suggest that attracting foreign equity investors reduces corruption, implying significant benefits for portfolio diversification.

Description

open access article

Keywords

Corruption, foreign equity portfolio investment, central bank transparency, stock market development, cross-country study

Citation

Kwabi, F.O. et al. (2020) Foreign equity portfolio flow and corruption: A cross-country evidence. International Journal of Finance and Economics,

Rights

Research Institute