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The purpose of this paper is to empirically investigate the impact of board financial expertise on the shareholding of foreign institutional investors in an emerging equity market of China and to explore whether ownership concentration moderates the relationship between board financial expertise and foreign institutional investment.

To test the hypothesized relationships, this study uses panel data regression models, i.e. static (fixed effect and random effect) and dynamic (two-step generalized methods of moments) models. Further, to control the possible endogeniety issue, this study uses two instrumental variables, namely, board size and industry average financial expertise of board to proxy board financial expertise. This study covers a period from 2006 to 2015 for 169 listed Chinese firms.

The results revealed that foreign institutional investors positively perceived board financial expertise and holds more shareholdings with the increasing level of financial experts at boards of directors. Moreover, ownership concentration positively moderated this relationship. It means that in highly concentrated firms, the board financial expertise conveys a stronger signal to foreign institutional investors that firms can manage financial resources rationally by controlling negative effects of ownership concentration. Further, the robustness model also confirmed the relationship between board financial expertise and foreign institutional shareholdings.

To the best of authors’ knowledge, this is the first study to investigate board-level financial expertise as a determinant of foreign institutional ownership. Further, no previous study has used ownership concentration as a contextual variable on the relationship between board financial expertise and foreign institutional investment.

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.

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 paper aims to explain regulatory issues and considerations as to future regulatory changes that Chinese regulators may implement with regard to the Qualified Foreign Institutional Investor (QFII) regime.

The paper describes: the regulators responsible for QFII; the relevant regulations; the qualification process, including eligibility requirements and the regulators' preference for qualifying long‐term, buy‐side institutional investors (usually pension funds, insurance companies and mutual funds); the concept of the “open‐ended China fund”; rules governing the remittance and repatriation of capital and the lock‐up period; a provision that prohibits QFIIs from transferring or selling their quotas (for example, to create structured products offering their customers synthetic exposure to the Chinese securities market); available account structures; the investment process, including investment restrictions, required disclosure of interests, the short swing profit rule, over‐purchases and erroneous trades, stock index futures trading, and insider dealing and manipulation of the market; withholding taxes; and recent developments.

China's QFII regime has been a key component of China's staged opening up of its financial markets, in particular its public securities market, permitting foreign investors to gain access to the previously restricted RMB denominated A share market under relatively strict regulatory oversight.

Practical guidance from an experienced financial services lawyer is provided.

Since their inception in late 2007, the Qualified Domestic Institutional Investor (QDII) funds, which help Chinese investors to invest in foreign capital markets, have experienced significant portfolio losses and persistent fund outflows. While these losses are large in absolute terms, QDII funds, on average, performed better than Chinese A-share funds, but slightly worse than a group of foreign mutual funds. Our study focuses on the QDII industry, and asks three interrelated questions: (1) why have there been large fund outflows from the industry? (2) what explains QDII funds’ poor performance? and (3) why have QDII funds been so heavily exposed to the Hong Kong market? Our empirical analysis shows that the persistent capital outflows were primarily a result of disappointing fund performance. This poor performance can, in turn, be explained by the deficiency of knowledge required of QDII fund managers to successfully invest in foreign capital markets and manage global portfolios. Finally, our study goes some way to explain the phenomenon of QDII funds’ large asset allocation in the Hong Kong market. This ‘Hong Kong bias’ is shown to be consistent with the well-documented ‘home bias’ behaviour in cross-border portfolio investment, but is greatly exacerbated by the lack of global investing experience of QDII managers.

This chapter examines China’s corporate governance and accounting environment that shapes the adoption of internationally acceptable principles and standards. Specifically, it examines international influences, including supranational organizations; foreign investors and international accounting firms; domestic institutional influences, including the political system, economic system, legal system, and cultural system; and accounting infrastructure. China’s convergence is driven by desired efficiency of the corporate sector and legitimacy of participating in the global market. Influenced heavily by international forces in the context of globalization, corporate governance and accounting practices are increasingly becoming in line with internationally acceptable standards and codes. While convergence assists China in obtaining legitimacy, improving efficiency is likely to be adversely affected given that corporate governance and accounting in China operate in an environment that differs considerably from those of Anglo-American countries. An examination of the corporate governance and accounting environment in China suggests heavy government involvement within underdeveloped institutions. While the Chinese government has made impressive progress in developing the corporate governance and accounting environment for the market economy, China’s unique institutional setting is likely to affect how the imported concepts are interpreted and implemented.

This study investigates the impact of board gender diversity and foreign ownership on innovation in Chinese firms.

The authors use data for Chinese manufacturing firms listed on the Shanghai and Shenzhen stock exchanges, for a sample over the period 2008–2017. Ordinary least square (OLS) is used as the baseline methodology, with cluster OLS, two-stage Heckman test, Blau index and Shannon index used to address endogeneity issues.

The results show that gender diversity on the board has a positive effect on corporate innovation as measured by the total number of patent applications, invention patent applications, utility model patent applications and design patent applications. Our findings also provide support for the critical mass participation of female directors on the board being associated with more innovation. They also reveal that innovation output does not vary across state-owned enterprises (SOEs) and non-SOEs. These outcomes reveal that SOEs' advantages, such as easy access to funding and more support of government, are likely offset by their disadvantages, such as different goals and having more agency issues. Because of intense political power and networks in Chinese firms, qualified foreign institutional investors (QFIIs) are less motivated to enhance innovation activities.

This study highlights the role of board gender diversity in enhancing innovation among Chinese manufacturing firms. Our findings provide support for regulatory bodies' role regarding women's participation on the board.

This research adds to literature by addressing the largely ignored questions of whether providing a gender-diverse board enhances innovation, whether critical mass participation has a greater effect on improving firm innovation and whether the influence of women directors varies with ownership structure.

Institutional investors have increasingly gained importance since the early 1990s. The assets under management in these funds have increased threefold since 1990 to reach more than US$45 trillion in 2005, including over US$20 trillion in equity (Ferreira & Matos, 2008). Further, the value of institutional investors' assets represents roughly 162.6% of the OECD gross domestic product in 2005 (Gonnard, Kim, & Ynesta, 2008). Given the magnitude of institutional investors' holdings relative to the world market capitalization, challenging questions on the economic role of these investors have been raised. One such question concerns their impact on the stability of stock markets. On the one hand, active strategies of buying and selling shares by these investors may contribute to moving stock prices away from their fundamental values. On the other hand, if all institutional investors react to the same information in a timely manner, they are in fact helping to increase market efficiency by speeding up the adjustment of prices to new fundamentals (for competing theories on the role of institutional investors, see, e.g., Lakonishok, Shleifer, & Vishny, 1992). This view of institutional investors as “efficiency drivers” generated considerable debate for many years (see, e.g., Ferreira & Laux, 2007; French & Roll, 1986).

This study examines the effects of foreign and domestic institutional investors on the value of excess cash holdings in the context of Pakistan where the institutional setting is broadly considered as non-friendly to outside shareholders due to family control.

A panel sample of 220 listed firms on the Pakistan Stock Exchange (PSX) was employed over the period 2007–2018. Data on institutional ownership are collected from the Standard & Poor’s (S&P) Capital IQ Public Ownership database, while the financial data are collected from Compustat Global. The study uses ordinary least squares (OLS) regression with year and firm fixed effects as the main econometric specification. Moreover, the application of models with alternative measures, high-dimensional fixed effects and two-stage least squares (2SLS) regression are also conducted for robustness.

Robust evidence was found that unlike domestic institutional investors, which do not influence the value of excess cash holdings, foreign institutional investors positively affect the contribution of excess cash holdings to firm value. The positive effect on excess cash holdings' value is mainly driven by foreign institutions domiciled in countries with strong governance and high investor protection. Moreover, this effect is stronger in firms that are less likely to have financial constraints.

This study provides novel evidence on the effect of institutional investors on the value of excess cash holdings in an emerging market like Pakistan. It also adds to the literature by revealing that the effect of different groups of institutional investors on the value of excess cash holdings is not homogenous.

The purpose of this paper is to check the impact of female directors on the board and foreign institutional investors on earnings manipulation.

The data sample includes Chinese listed companies on the Shenzhen and Shanghai stock exchanges. The data are collected from China Stock Market and Accounting Research database covering the period from 2010 to 2017. The authors use a dynamic generalized method of moments in the study.

The findings show that the presence of female director on the board has a significant negative impact on both discretionary accruals and real earning management. However, the authors obtain different results for foreign institutional investor investors. This may be the result of myopia as the foreign institutional stockholders in Chinese companies are looking for quick profit encouraging management to manipulate earnings. the findings survive several robustness tests.

The authors expect the research results provide ample evidence about how female directors affects earnings manipulation, and also hope the research helps to understand how, in China, institutional ownership affects earnings manipulation.