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Purpose – Examine the role of institutional investors in accelerating the development of capital markets and economies abroad, the determinants of their investment, both in the domestic and foreign markets, and their importance in promoting good corporate governance practices worldwide and facilitating increased financial integration.

Methodology/approach – Review and synthesize recent academic literature (1970–2011) on the process of international financial integration and the role of foreign institutional investors in the increasingly global financial markets.

Findings – Despite the concern that short-term flow of international capital can be destructive to the emerging and developing market economies, academic evidence on a destabilizing effect of foreign investment activity is limited. Institutional investors’ systematic preference for stocks of large, well-known, globally visible foreign firms can explain the presence of a home bias in international portfolio investment.

Research limitations – Given the breadth of the two literature streams, only representative studies (over 45 published works) are summarized.

Social implications – Regulators of emerging markets should first improve domestic institutions, governance, and macroeconomic fundamentals, and then deregulate domestic financial and capital markets to avoid economic and financial crises in the initial stages of liberalization reforms.

Originality/value of paper – A useful source of information for graduate students, academics, and practitioners on the importance of foreign institutional investors.

The chapter analyzes the modern features of the movement of foreign investments and the participation of the Republic of Belarus in this process. Trends in foreign direct investment (FDI) flows in the context of different countries and the structure of investment capital in our country have been considered. A greater priority in attracting investments in large projects in the form of equity participation compared to debt instruments and profits refinancing has been justified. The largest projects with foreign investments as well as features of outgoing FDI have been considered. The activities of foreign transnational corporations and the factors hindering the internationalization of business activity of domestic enterprises have been studied in detail. The priority areas of government in activities to promote the attraction of FDI to the Republic of Belarus have been analyzed.

This study examines the effect of host government interference with foreign investors’ assets on foreign direct investment (FDI) inflow. The author hypothesizes that the relationship between host government interference and FDI inflow takes the form of an inverted U shape. The author tests this hypothesis using data from the International Centre for Settlement of Investment Disputes between 1996 and 2017. The results support the above hypothesis. While host government interference with the assets of a few foreign investors may not deter FDI inflow, frequent interferences, which result in an increasing number of host state–foreign investor disputes, reduces FDI inflow in a host country. The analysis also shows that when faced with an increasing host country uncertainty, investors adopt a wait and see strategy. However, how long investors wait depends on the economic situation of the host country. For high-income countries, investors wait until approximately 10 disputes before reducing investments level in a host country, while for low-income countries, this waiting period is a mere two disputes. The findings of this study suggest that countries seeking to attract more FDI should not interfere with the activities of foreign investors, however, if they do, disputes should be settled at home, not in international arbitration courts, because doing so frequently may poison the host environment and deter other foreign investors from investing in the host country.

Among the prominent economic trends in recent decades is the exponential increase in flows of goods and capital driven by technological progress and falling of restrictions. A key driver of this phenomenon has been the cross-border production, foreign investment, and trade both final and intermediate goods by multinational corporations. Research has sought to understand how foreign direct investment (FDI) affects host economies. This paper reviews the main theories and empirical evidence of two streams of literature: the mechanisms by which multinational activity might create positive effects and externalities to countries and the role of complementary local conditions, also known as “absorptive capacities,” that allow a country to reap the benefits of FDI paying particular attention to the role of factor markets, reallocation effects, and the linkages generated between foreign and domestic firms. The survey focuses mainly on work related to developing countries.

We compare environmental impacts associated with incoming foreign direct investment versus domestic capital in China. We use aggregate data on Chinese provinces’ economic and pollution indicators to explore the effects of the financial origin of fixed capital. Our simultaneous models consider three prime channels through which these effects work: economic scale, sectoral composition, and pollution intensity. Results show that emissions associated with foreign financed capital are lower than with domestically financed capital for some but not all of the considered types of pollution.

Purpose – Investigate the causes and consequences of foreign financial institutions' divestments in China's banking sector which is an example of cross-border transactions by institutional investors.

Methodology – Use a sample of 26 foreign financial institutions' strategic investments in Chinese banks. Ten of those investments are divested after the global financial crisis. We investigate determinants of the divestment, business cooperation after the divestment, and Chinese banks' stock price reactions to the divestment announcement.

Findings – The poor performance of foreign financial institutions, which is attributable to the global financial crisis, and the institutions' regulated low equity ownership are important causes of divestment (or whole divestment). In contrast, Chinese banks' poor performance does not cause foreign divestments. Foreign financial institutions that fully divest their equity stakes usually terminate their cooperative business, which was required by the strategic investment agreement. The Bank of China and the China Construction Bank, which experienced large H-share divestments, experienced large economic declines in A-share values.

Social implications – Foreign financial institutions' strategic investments created substantial shareholder value before the divestment. Banking sector developments that rely on foreign investments are vulnerable to economic downturns in developed countries.

Originality/value of paper – To the best of our knowledge, this is the first trial to analyze the impact of divestments on divested bank performance.

Political risk is a complex phenomenon. This complexity has incentivized scholars to take a piecemeal approach to understanding it. Nearly all scholarship has targeted a single type of political risk (expropriation) and, within this risk, a single type of firm (MNCs) and a single type of strategic mechanism through which that risk may be mitigated (entry mode). Yet “political risk” is actually a collection of multiple distinct risks that affect the full spectrum of foreign firms, and these firms vary widely in their capabilities for resisting and evading these risks. We offer a unified theoretical model that can simultaneously analyze: the three main types of political risk (war, expropriation, and transfer restrictions); the universe of private foreign investors (direct investors, portfolio equity investors, portfolio debt investors, and commercial banks); heterogeneity in government constraints; and the three most relevant strategic capabilities (information, exit, and resistance). We leverage the variance among foreign investors to identify effective firm strategies to manage political risk. By employing a simultaneous and unified model of political risk, we also find counterintuitive insights on the way governments trade off between risks and how investors use other investors as risk shields.