"Liberalizing capital markets, however, does not always mean that foreigners are willing to supply capital or that local companies are eager to receive it."
"Poor corporate governance is one reason foreigners may be reluctant to invest in certain companies abroad...In particular, foreigners are wary of investing in a firm controlled by shareholders who are also its managers"
"...if domestic investors have more information than foreigners about the local business environment, then the price of the firm's stock will reflect what the locals know but not the cost that foreigners would have to incur in figuring out whether to invest in a company"
"This probably explains why previous papers that have looked at the impact of corporate governance on investing in U.S. firms show very little effect, because shareholders in the United States are well protected through effective disclosure regulations and measures that safeguard outsiders' investments. This is not the case in many other countries where the information advantage that locals have could create a significant wedge between the ability of a local and a foreigner to assess firms."
"The study finds strong evidence that U.S. investors hold significantly fewer shares in firms with high levels of managerial and family control, but only when these firms are located in countries with weaker disclosure requirements, securities regulations, and outside shareholder rights. In contrast, firms with substantial insider control that are located in countries with strong investor protection and require more transparency do not experience less foreign investment."
"...findings do not simply depend on a country's economic development but appear to be directly related to its legal institutions and rules on disclosure and investor protection. Previous papers have noted that in Italy, which is considered a developed market, favoring connected insiders at the expense of minority shareholders may be tolerated at times within the country's institutional and political frameworks. An emerging market like Hong Kong, in contrast, has comprehensive and well-enforced disclosure requirements."
"Regulators and governments aiming to substantially attract more foreign investment also can change the set of rules and laws that encourage insider control and opaqueness in the first place, such as weak investor rights."
"...it is unclear whether all firms would be willing to make changes especially if they have other sources of capital that do not require more transparency....In a another study by Leuz and Felix Oberholzer-Gee of Harvard University that looks at the role of political connections in firms' financing strategies in Indonesia, the authors find that political connections and global financing are actually substitutes...well-connected firms favored low-cost loans from state-owned banks and disliked the accountability and scrutiny that comes with publicly traded securities."
"Institutional reform and political reform go hand in hand," says Leuz."