Foreign equity portfolio flow and corruption: a cross-country evidence

Kwabi, Frank, Boateng, Agyenim, Fosu, Samuel, Zhu, Ting Ting and Chijoke-Mgbame, Marian (2022) Foreign equity portfolio flow and corruption: a cross-country evidence. International Journal of Finance and Economics, 27 (1). pp. 68-87. ISSN 1076-9307

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Abstract

This study examines the impact of foreign equity portfolio investment on corruption. Employing a large dataset of 44 countries from 2001 to 2015 and three different measures of corruption, our results show that foreign investors from well-governed countries tend to foster public accountability, reduce asymmetry information and corruption. We find empirical evidence that foreign equity portfolio investment interacts with stock market development and central bank transparency to reduce corruption. Our results suggest that stock market development and central bank transparency are regarded as complementary by international portfolio investors. Further analysis indicates that corruption appears more prevalent in countries where domestic investors dominate the stock market. Our results are robust to endogeneity using dynamic generalized methods of moments (GMM). The findings suggest that attracting foreign equity investors reduces corruption, implying significant benefits for portfolio diversification.

Item Type: Article
Keywords: central bank transparency, corruption, cross-country study, foreign equity portfolio investment, stock market development
Schools and Departments: University of Sussex Business School > Accounting and Finance
SWORD Depositor: Mx Elements Account
Depositing User: Mx Elements Account
Date Deposited: 11 May 2022 08:08
Last Modified: 11 May 2022 08:15
URI: http://sro.sussex.ac.uk/id/eprint/105831

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