Direct foreign ownership, institutional investors, and firm characteristics

• Published in: Journal of financial economics Vol. 59; no. 3; pp. 413 - 440
• Main Authors: Dahlquist, Magnus, Robertsson, Göran
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.03.2001; Elsevier; Elsevier Sequoia S.A
• Series: Journal of Financial Economics
• Subjects: Bias; Foreign investments in the US; Home bias; Individual investors; Institutional investments; Investors; Market portfolio; Mutual funds; United States > US; Market portfolio; Home bias; G1; G15; Mutual funds; Individual investors
• ISSN: 0304-405X; 1879-2774
• DOI: 10.1016/S0304-405X(00)00092-1

In this paper, we characterize foreign ownership using a dataset of ownership and attributes of Swedish firms. The analysis reveals that foreigners show a preference for large firms, firms paying low dividends, and firms with large cash positions on their balance sheets. When we further analyze the preference for large firms, we find that market liquidity and presence in international markets, measured through export sales or listings on other exchanges, seem to characterize foreign holdings better than firm size alone. Foreigners also tend to underweight firms with a dominant owner. Importantly, we demonstrate that most of the features associated with foreign ownership are driven by the fact that foreign investors typically are mutual funds or other institutional investors. Hence, we identify an institutional investor bias rather than a foreign investor bias. Finally, using ownership data on a country level, we conclude that the results are particularly strong among U.S. investors, who comprise the largest institutions among foreign investors.