HCBE Faculty Articles
Title
Corruption's Impact on Foreign Portfolio Investment
Document Type
Article
Publication Date
2017
Publication Title
International Business Review
ISSN or ISBN
0969-5931
Volume
26
Issue/Number
1
First Page
23
Last Page
35
Abstract/Excerpt
Corruption has significant effects on a nation’s financial markets through its adverse impact on foreign portfolio investment (FPI). Yet, the effects of corruption on FPI are nonlinear and reverse J-shaped, with intermediate levels of corruption yielding the most negative effects. Highly transparent nations, where a “level playing field” exists between foreign and local investors due to lack of information asymmetries related to corruption, attract the most foreign investment. However, at the margin, very corrupt countries attract more investment than moderately corrupt countries because a “perverse level playing field” in the former countries may put foreigners and locals on an even footing in terms of resolving asymmetric information problems. This nonlinear pattern is consistent with foreign investors’ desire to trade in markets where they are not at an informational disadvantage.
DOI
10.1016/j.ibusrev.2016.05.004
NSUWorks Citation
Kuvvet, Emre; Jain, Pankaj K.; and Pagano, Michael S., "Corruption's Impact on Foreign Portfolio Investment" (2017). HCBE Faculty Articles. 767.
https://nsuworks.nova.edu/hcbe_facarticles/767
