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The purpose of this paper is to analyze the firm’s capital market benefits in a high-quality information setting. More specifically, the authors address the question of whether the commonly documented IFRS benefits are capable of influencing inducing shareholders to increase their equity investment in adopting firms.

This study is performed on publicly listed firms in three emerging countries, namely, Morocco, South Africa and Turkey. The design of the ownership database allows a panel analysis for the years 2001 through 2011. The trend approach is suitable to account for concurrent effects that are unrelated to financial reporting while controlling for time-lasting behavior of investors. Overall, a minimum of four-year periods before and after the IFRS adoption date are warranted.

Overall, the findings support evidence of increases in equity holdings following a firm’s IFRS adoption. More specifically, institutional investors and institutional blockholders (both domestic and foreign) invest more heavily in the stocks of the firms that have committed to IFRS. By contrast, the authors fail to report evidence for ownership by blockholders and controlling shareholders.

The current empirical work should be of value to international investors, policy makers and market authorities. As for international investors facing reduced information disadvantage and comparable financial information across worldwide markets, they will find it easier to select and invest in value-creating stocks. This study may be useful for policy makers in acquiring a clear view of advantages, challenges and relevance of IFRS adoption to emerging markets. In particular, this study contributes to an understanding of potential capital market consequences of IFRS adoption. Furthermore, market authorities should be aware of the importance of institutional framework to enhance IFRS implementation and usage.

This work contributes to the ongoing empirical research on the intended capital market benefits of IFRS. The authors provide deeper insight into shareholdings changes of a number of key investors in a context where supply and demand of information are stained with asymmetry and mostly, influenced by differences in accounting practices. A major contribution of this study is the use of a methodological approach that outperforms commonly used approaches in the way how it considers concurrent events (compared to the shift specification) and time-lasting investor behavior (compared to the difference-in-differences analysis).

Purpose – Study the firm-level and country-level determinants of US institutional investors' holdings in American Depositary Receipts (ADRs) from emerging markets.

Methodology/approach – We use a sample of 112 firms from emerging markets that listed as ADRs between 1990 and 2005. Rather than adopting the issuer's perspective, we take in this study the point of view of the investor and we focus on the US institutional investors' participation in ADR firms.

Findings – We find that institutional investors hold higher stakes in foreign firms that are listed on more restrictive exchanges, in large, privatized, more liquid, and more transparent firms. Mutual investors and other institutional investors also prefer firms from countries with weaker institutional environments and from civil law legal tradition. Controlling for country-level determinants increases significantly the explanatory power of the model.

Social implications – Our results have important implications for firms from emerging markets seeking to attract foreign institutional investors.

Originality/value of the chapter – We focus on the motivations of investors when they choose to invest in the ADR, rather than on the ADR issuer motivation. In addition, we consider all types of institutional investors that acquire a participation in an ADR firm.

Extending the extant literature and using Qatar’s equity market as a case study, this paper aims to look into the potential impacts of foreign investor groups’ trading activities on market volatility in comparison with those of Qatar’s domestic investor counterparts.

The dataset is comprised of daily aggregated values of stock purchases and sales made separately by four investor groups, namely, foreign individual investors, foreign institutional investors, domestic individual investors, and domestic institutional investors. An ex post measure of volatility introduced by Rogers and Satchell (1991) is employed. Four proxies for investor trading are considered separately in the analysis. The objective of the study is empirically addressed in the context of the Generalized Method of Moments estimation technique.

In general, there exists substantial contemporaneous price impact associated with foreign equity investment in the Qatari capital market, despite the fact that foreigners’ buy and sell trades are not as large as those of their domestic counterparts. More specifically, foreign institutional sales (purchases) tend to increase (reduce) market volatility. Like those of foreign institutions, the sell trades by foreign individuals have a positive impact on volatility. On the other hand, domestic institutional purchases are significantly negatively related with market volatility, whereas the sell trades by the same category have no impact on volatility. Finally, surprises in foreigners’ trading volumes turn out to be responsible for adding to volatility.

Although a sudden reversal of foreign capital flows can pose a real threat to the stability of the Qatari capital market, such capital flows are deemed to be an indispensable vehicle for enhancing the liquidity and efficiency of the market. Accordingly, policy makers in Qatar should overhaul the current foreign investment legislation to make it even more streamlined and better suited to achieving the country’s strategic vision for the market. Foremost in these reforms is relaxing the stringent 25 percent foreign ownership restriction. Such a relaxation process is highly recommended to be phased in only gradually, in order to weigh its pros and cons. In this regard, the authorities concerned should consider embarking on a range of procedures intended to ward off the adverse ramifications of foreign capital outflows.

To the author’s best knowledge, no study about the impact of foreign equity flows on domestic markets has been so far conducted using trading data from the Qatari market. This work presents one such attempt.

This paper addresses the topic “The interaction between financial institutions and firms in the nonfinancial sectors” in the special issue of “Banking and finance in China.” The purpose of this paper is to examine the trading behavior and price effects of foreign institutions under the celebrated Qualified Foreign Institutional Investor (QFII) scheme on all non-financial firms in the Chinese A-share markets.

Using quarterly equity-level foreign institution transactions from 2005Q1 to 2011Q4 in the Chinese A-share market, the author finds a positive and significant contemporaneous relationship between foreign flows and equity returns. For each quarter, the author sorts the stocks into ten portfolios based on the percentage of foreign flows, and employs the bivariate vector autoregression (VAR) model to examine the contemporaneous association in detail.

Foreign institutions in the Chinese A-share markets do not show positive or negative feedback trading; however, their flows have a strong impact on future equity returns because of informational advantage. Additionally, different associations are found between foreign flows and equity returns.

Constraints on data availability exist, and a quarterly dimension is too coarse to provide a statistically precise result, although certain related papers use quarterly dimension data. Further research is required using higher frequency data.

This paper provides a first look at foreign institution trading patterns and price effects on local equity returns in the Chinese A-share markets. Additionally, the equity level data allow the author to exclude the stocks that were not bought by foreign institutions and to detect the “pure effect” of foreign flows on equity returns.

Using the next-day and next-week returns of stocks in the Korean market, we examine the association of option volume ratios – i.e. the option-to-stock (O/S) ratio, which is the total volume of put options and call options scaled by total underlying equity volume, and the put-call (P/C) ratio, which is the put volume scaled by total put and call volume – with future returns. We find that O/S ratios are positively related to future returns, but P/C ratios have no significant association with returns. We calculate individual, institutional, and foreign investors’ option ratios to determine which ratios are significantly related to future returns and find that, for all investors, higher O/S ratios predict higher future returns. The predictability of P/C depends on the investors: institutional and individual investors’ P/C ratios are not related to returns, but foreign P/C predicts negative next-day returns. For net-buying O/S ratios, institutional net-buying put-to-stock ratios consistently predict negative future returns. Institutions’ buying and selling put ratios also predict returns. In short, institutional put-to-share ratios predict future returns when we use various option ratios, but individual option ratios do not.

Purpose – We study the investment behavior of foreign institutional investors operating in China. A detailed analysis of foreign institutional investors is examined, along with a comparison of domestic Chinese investors.

Methodology/approach – We adopt annual Chinese stock market data for the period 2003–2009 for both foreign and domestic funds to analyze the industrial preference of foreign funds and compare the different preferences between foreign funds and domestic Chinese funds in relation to financial characteristic and corporate governance indicators.

Findings – The analysis reveals that foreign funds have a preference for a range of sectors such as transportation, metals and nonmetals, and machinery, as opposed to industries with a requirement for local knowledge. The portfolios of domestic Chinese funds are distributed more evenly across sectors, compared to foreign funds. The comparative analysis reveals that the companies foreign funds invest in are significantly different from those firms favored by domestic funds in terms of size, profit, and management compensation.

Social implications – These empirical findings highlight the differences between foreign and domestic funds investment preferences and has implications for policy makers aiming to attract foreign investors to emerging markets.

Originality/value of chapter – Our chapter not only provides an introduction on the QFII scheme in China, but also examines the impact of a comprehensive range of firm-level characteristics, financial and corporate governance indicators, on the investment decisions of foreign and domestic funds in emerging markets.

The purpose of this paper is to explore how shareholder engagement on environmental, social, and governance (ESG) issues is informally exercised by a large global institutional investor with locally embedded, geographically remote firms. This field is still a new area of research due to a scarcity of data, and because ordinarily, private engagement activities are conducted confidentially. Therefore, the paper aims to fill this gap in the literature by studying the private corporate engagement activities of a large UK-based institutional investor on ESG issues with Japanese investee firms in order to achieve a greater understanding of the under-researched area of corporate social responsibility.

The authors employ a multi-method approach to analyse engagement activities by the institutional investor. The authors have obtained a unique data set of the institutional investor’s engagement activities. The institutional investor is UK-based, has a long history of active engagement, and is considered one of the oldest and largest specialists in responsible investment. Further, the authors have conducted several in-depth interviews with a UK-based ESG service provider as well as one of the largest Japanese trust companies.

First, it is found that main target firms of engagement activities are large firms with global operations, and that corporate governance issues are the most important engagement topic in Japan. Second, in trying to effectively exercise voice across societies, engagement activities are conducted with geographically remote target firms on various ESG agendas in a self-enforcing, face-to-face, and sometimes collective manner. Finally, this study argues for the gap between the asset manager’s motivation to engage and local target firms’ readiness to respond due to corporate organisational and language issues.

The authors contribute to social responsibility literature by focusing on the role of global investors in Japan to diffuse global standards. This area has been largely neglected in this stream of literature, despite the increasing presence of foreign investors in Japan. This is one of the first attempts to analyse a global investor’s engagement strategies with one specific country outside of the USA and Europe. Further, within the literature on shareholder engagement, this is the first paper that focuses on the means of engagement activities and the responses by target firms.

Many emerging economy firms are under foreign owners' pressure to embrace the challenges of addressing corporate social responsibility (CSR) and consider adopting sustainability initiatives. However, it is not clear how foreign ownership plays a role to enable or inhibit these emerging economy firms from translating sustainability initiatives into improved financial performance. Utilizing neo-institutional theory, the authors argue that emerging economy firms that voluntarily report sustainability gain legitimacy in the eyes of shareholders and improve stock market performance. However, emerging economy firms may not have the resources to reconcile the internal stakeholders' various legitimacy requirements to promote sustainability practices, resulting in a negative association with accounting performance. Foreign ownership attenuates the relationship between sustainability reporting and firm performance due to the different legitimacy requirements in foreign markets.

To test the study’s hypotheses, the authors collected and analyzed a large sample of publicly listed firms between 2010 and 2016 in Taiwan where the types of foreign ownership include foreign trust funds, foreign financial institutions and other foreign legal entities. Regression analyses were conducted to investigate whether the firms that report their sustainable practices have better financial performance, including stock market performance and accounting performance. Additionally, a three-step procedure was employed to address the endogeneity issue with a binary explanatory variable.

The positive stock market reaction to the emerging economy firms' voluntary sustainability reporting supports legitimacy gained among investors. By contrast, sustainability reporting has a negative association with accounting performance due to the difficulty of reconciling different legitimacy requirements among various stakeholders in emerging economies. Further, foreign ownership, particularly the trust fund, exhibits a negative moderating effect on the relationship between sustainability reporting in aligning corporate practices with sustainable development goals (SDGs) and the company's stock market performance.

By examining the less tested contingent role played by foreign ownership in the emerging economy firms' sustainability reporting, the authors provide insights into the influence exerted by different types of foreign ownership on firms' financial performances beyond previous studies that focus on family ownership, state ownership, or managerial ownership in emerging economies. The findings shed light on corporate sustainability strategy and foreign direct investment policies for an emerging economy.

This study aims to investigate whether underwriters exercise their allocation discretion to offer favorable discounts to institutional investors.

The research covers 173 offerings at Borsa Istanbul between 2010 and September 2021. Two hypotheses related to allocation discretion are developed and tested by means of probit, ordinary least squares and two-stage least squares regressions. Heckman selection regressions are used for robustness tests.

Allocation discretion is catered toward institutional investors who account for more than 56% of all initial allocations adjusted by gross proceeds. Close to 84% of all gross proceeds come from offerings that allocation discretion is exercised. These discretionary offerings are sold with larger price discounts, yet provide lower initial returns, while evidence points to reallocation to retail investors due to weak demand from institutional investors.

Despite using the population of firms in the research period, the sample size is small relative to more developed markets. The research period cannot be extended because allocation discretion is allowed in 2010.

The research highlights the importance of institutional and foreign investors to the equity markets. This issue is relevant due to the ongoing flight of foreign investors from emerging economies and the increasing participation of small investors in the stock markets.

The study cautions retail investors against greater (re)allocations by underwriters who may seek to compensate for the loss of their foreign investor base and urges policymakers to regain foreign investors.

To the best of the authors’ knowledge, this is the first research paper to use actual discounts disclosed in the prospectus to test the predictions related to allocation discretion. The study also contributes to the emerging markets literature by documenting allocation practices of the Turkish underwriters for the first time.

This paper aims to clarify the relationship between the voting and engagement behaviour of institutional investors, i.e. institutional investor stewardship behaviour, and the enactment of stewardship by corporate boards. In doing so, this paper contributes to the evaluation of contemporary corporate governance systems and provides recommendations for the redesign of these systems.

This paper is based on a qualitative exploratory descriptive research study into assumed, prescribed and the actual behaviour of institutional investors. Their behaviour is explored through a survey and in-depth interviews with global institutional investors.

The prescription of institutional investor stewardship behaviour and the exploration of actual behaviour from an investors’ perspective led to the conclusion that assumed institutional investor stewardship exists variously as either “in form” (i.e. measured by compliance to the relevant corporate governance code) or “in substance” (i.e. the actual behaviour from the investors and investee companies’ perspective). The results suggest that that institutional investors’ actual stewardship behaviour as global investors requires a nuanced conclusion about the existence of institutional investor stewardship.

Although the number of semi-structured interviews with institutional investors was limited to just 14, these interviewees represent the majority share in terms of market capitalisation of Dutch listed companies. Additional research could clarify the perspective of other investors, such as pension funds and private investors.

The outcome of this research can serve as input for corporate governance reforms in the preambles of governance codes and the prescribed principles and best practice provisions of corporate governance and stewardship codes. This research identifies opportunities for further academic research to enrich the understanding of the role of institutional investors in enacting corporate stewardship.

This paper contributes to furthering the understanding of the mechanisms by which institutional investors, through their behaviour, contribute to enacting stewardship through their corporate boards. This is an important part of the corporate social responsibility of institutional investors. It also triggers a dialogue about the social and environmental impacts of stock listed companies.

This paper fulfils an identified need to develop knowledge about new paradigms and offers a more integrated approach to corporate governance reforms in terms of the role of institutional shareholders in the promotion of good corporate governance.