Factors that influence Cross-Border Equity Investments

International Equity Investment

In Theory o Benefits to investor - diversifying country specific risk which helps in lower covariance of

returns
o Benefits to managers - Lowering cost of capital In Practice o Phenomenon of HOME BIAS

Institutional Frictions
Transactional cost and exchange rate risk Tax reporting Limits on the percentage of foreign investments

Investor Protection
Minority investments should not be expropriated by the

major ones. Insider trading

Protection can be placed in 2 categories:

Laws imposed by the nation 2. Voluntary corporate governance

1.

Firm Visibility
Research about the firm before investing Firms listed on stock exchanges

Investor Understanding
Understanding the firm for domestic investors will be

advantageous
Foreign investors can reduce this advantage
Mitigating costs

Culture
Similar culture impacts international equity flow: - Similar legal and linguistic systems - Trust or preference of similarity - Common religion

- Level of intolerance for abuses of market and political power