Journal of Banking & Finance Vol. 37 No. 2 2013
Does foreign institutional ownership increase return volatility? Evidence from China
Abstract
This paper investigates the impact of foreign institutional ownership on firm-level stock return volatility in China, based on our study of a sample of 1458 firms between 1998 and 2008. The empirical results show that share ownership by foreign institutions (both financial and non-financial) increases firm-level stock return volatility, even after controlling for a complete ownership structure, firm size, turnover, and leverage, and correcting for potential endogeneity problems. However, the results also show that foreign individual shareholdings reduce volatility. Furthermore, we document a positive relationship between domestic shareholdings (individual, institutional, and governmental) and firm-level stock return volatility. Empirical results with interaction terms show that foreign institutional ownership increases firm-level return volatility by strengthening the positive impact of liquidity on volatility. The volatility reduction effect of foreign individual ownership is attenuated by government ownership suggests a poor governance environment as a result of the involvement of the Chinese government.
- DOI
- 10.1016/j.jbankfin.2012.10.006
- Volume
- 37
- Issue
- 2
- Pages
- 660-669
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib