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FIRM LEVEL DETERMINANTS OF FOREIGN PORTFOLIO INVESTMENTS IN TURKEY: A DYNAMIC PANEL REGRESSION ANALYSIS APPROACH

Year 2016, Volume: 3 Issue: 2, 126 - 141, 30.06.2016

Yilmaz Yildiz Mehmet Karan

Abstract

The main aim of this study is to identify the investment preferences of foreign portfolio investors in Turkey. In this study, which comprises 151 non-financial firms listed in Borsa Istanbul between the years 2005-2014 and 1510 firm-year observations, dynamic panel regression methods are used to account for the consistent structure of the foreign investors’ preferences over years. The findings of the study indicate that the market size is the most important determinant of the foreign investment decisions. In addition to the market size, foreign investors prefer firms with low level of liquidity. We do not observe any consistent and significant relationship between foreign investment ratio and other firm specific determinants. The findings of this study is consistent with the other similar studies in the literature. It is believed that due to asymmetric information problem between the local and foreign investors, foreign investors tend to invest in firms that they have more information about.

 

Keywords

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References

  • Aggarwal, R., Klapper, L., & Wysocki, P. D. (2005). Portfolio preferences of foreign institutional investors. Journal of Banking & Finance, 29(12), 2919-2946.
  • Anderson, T. W., & Hsiao, C. (1982). Formulation and estimation of dynamic models using panel data. Journal of econometrics, 18(1), 47-82.
  • Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The review of economic studies, 58(2), 277-297.
  • Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of econometrics, 68(1), 29-51.
  • Asgharian, H. (2003). Are highly leveraged firms more sensitive to an economic downturn?. The European Journal of Finance, 9(3), 219-241.
  • Bencivenga, V., Smith, B., & Starr, R. M. (1992). Liquidity of Secondary Capital Markets: Allocative Efficiency and the Maturity of the Capital
  • Stock(No. 326). University of Rochester-Center for Economic Research (RCER). Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of econometrics, 87(1), 143.
  • Bond, S. R. (2002). Dynamic panel data models: a guide to micro data methods and practice. Portuguese economic journal, 1(2), 141-162.
  • Dahlquist, M., & Robertsson, G. (2001). Direct foreign ownership, institutional investors, and firm characteristics. Journal of Financial Economics, 59(3), 413-440.
  • Dahlquist, M., Pinkowitz, L., Stulz, R. M., & Williamson, R. (2003). Corporate governance and the home bias. Journal of Financial and Quantitative Analysis,38(01), 87-110.
  • Edison, H. J., & Warnock, F. E. (2004). US investors' emerging market equity portfolios: a security-level analysis. Review of Economics and Statistics, 86(3), 691-704.
  • Evans, K. (2002). Attractive foreign direct investment for development. Global fórum on international investment.
  • Fama, E. F., & French, K. R. (1992). The cross‐section of expected stock returns. the Journal of Finance, 47(2), 427-465.
  • Giannetti, M., & Simonov, A. (2006). Which investors fear expropriation? Evidence from investors' portfolio choices. The Journal of finance, 61(3), 1507-1547.
  • Glossary, O. E. C. D. (2003). OECD Glossary of Statistical Terms.
  • Gökkent, Gıyas M. (1997). Theory of Foreign Portfolio Investment. Florida International University. Phd dissertation.
  • Greenwood, J., & Jovanovic, B. (1989). Financial development, growth, and the distribution of income (No. w3189). National Bureau of Economic Research.
  • Hao, J. (2004, January). Foreign ownership and equity returns: Evidence from Japan. In 17th Australasian Finance and Banking Conference (pp. 15-17).
  • Hargis, K. (1998). Do foreign investors stimulate or inhibit stock market development in Latin America?. The Quarterly Review of Economics and Finance, 38(3), 303-318.
  • Hargis, K., & Ramanlal, P. (1998). When does internationalization enhance the development of domestic stock markets?. Journal of
  • Financial Intermediation,7(3), 263-292. Holtz-Eakin, D., Newey, W., & Rosen, H. S. (1988). Estimating vector autoregressions with panel data. Econometrica: Journal of the Econometric Society, 1371-1395.
  • IMF (1998), World Economic Outlook. http://www.imf.org/external/pubs/ft/weo/weo0598/pdf/0598ch1.pdf.
  • IMF (2013), Annual Report. https://www.imf.org/external/pubs/ft/ar/2013/eng/pdf/ar13_eng.pdf.
  • Kandır, S. Y. (2008). Yabancı Yatırımcıların Türkiye’deki Yatırım Tercihlerinin Araştırılması. Muhasebe ve Finansman Dergisi, 38, 199-209.
  • Kang, H. C., Lee, D. W., & Park, K. S. (2010). Does the difference in valuation between domestic and foreign investors help explain their distinct holdings of domestic stocks?. Journal of Banking & Finance, 34(12), 2886-2896.
  • Kang, J. K. (1997). Why is there a home bias? An analysis of foreign portfolio equity ownership in Japan. Journal of Financial Economics, 46(1), 3-28.
  • Kargi, B. (2014). Portfolio in Turkish economy, and a long termed relation between foreign direct investments and the growth, and the structural breakage analysis (1980-2012). Journal of Academic Research in Economics, 6(1), 70-81.
  • King, R. G., & Levine, R. (1993). Finance and growth: Schumpeter might be right. The quarterly journal of economics, 717-737.
  • La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (2000). Investor protection and corporate governance. Journal of financial economics, 58(1), 3-27.
  • Leuz, C., Lins, K. V., & Warnock, F. E. (2010). Do foreigners invest less in poorly governed firms?. Review of Financial Studies, 23(3), 3245
  • Levine, R., & Zervos, S. (1996). Stock market development and long-run growth. The World Bank Economic Review, 10(2), 323-339.
  • Liljeblom, E., & Löflund, A. (2005). Determinants of international portfolio investment flows to a small market: empirical evidence. Journal of multinational financial management, 15(3), 211-233.
  • Lin, C. H., & Shiu, C. Y. (2003). Foreign ownership in the Taiwan stock market—an empirical analysis. Journal of Multinational Financial Management, 13(1), 19-41.
  • Merton, R. C. (1987). A simple model of capital market equilibrium with incomplete information. The journal of finance, 42(3), 483-510.
  • Min, B. S., & Bowman, R. G. (2015). Corporate governance, regulation and foreign equity ownership: Lessons from Korea. Economic Modelling, 47, 145-155.
  • Nickell, S. (1981). Biases in dynamic models with fixed effects. Econometrica: Journal of the Econometric Society, 1417-1426.
  • Opler, T. C., & Titman, S. (1994). Financial distress and corporate performance. The Journal of Finance, 49(3), 1015-1040.
  • Pagano, M. (1989). Trading volume and asset liquidity. The Quarterly Journal of Economics, 255-274.
  • TCMB. (2005). Ödemeler Dengesi Raporu.

Year 2016, Volume: 3 Issue: 2, 126 - 141, 30.06.2016

Yilmaz Yildiz Mehmet Karan

Abstract

References

  • Aggarwal, R., Klapper, L., & Wysocki, P. D. (2005). Portfolio preferences of foreign institutional investors. Journal of Banking & Finance, 29(12), 2919-2946.
  • Anderson, T. W., & Hsiao, C. (1982). Formulation and estimation of dynamic models using panel data. Journal of econometrics, 18(1), 47-82.
  • Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The review of economic studies, 58(2), 277-297.
  • Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of econometrics, 68(1), 29-51.
  • Asgharian, H. (2003). Are highly leveraged firms more sensitive to an economic downturn?. The European Journal of Finance, 9(3), 219-241.
  • Bencivenga, V., Smith, B., & Starr, R. M. (1992). Liquidity of Secondary Capital Markets: Allocative Efficiency and the Maturity of the Capital
  • Stock(No. 326). University of Rochester-Center for Economic Research (RCER). Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of econometrics, 87(1), 143.
  • Bond, S. R. (2002). Dynamic panel data models: a guide to micro data methods and practice. Portuguese economic journal, 1(2), 141-162.
  • Dahlquist, M., & Robertsson, G. (2001). Direct foreign ownership, institutional investors, and firm characteristics. Journal of Financial Economics, 59(3), 413-440.
  • Dahlquist, M., Pinkowitz, L., Stulz, R. M., & Williamson, R. (2003). Corporate governance and the home bias. Journal of Financial and Quantitative Analysis,38(01), 87-110.
  • Edison, H. J., & Warnock, F. E. (2004). US investors' emerging market equity portfolios: a security-level analysis. Review of Economics and Statistics, 86(3), 691-704.
  • Evans, K. (2002). Attractive foreign direct investment for development. Global fórum on international investment.
  • Fama, E. F., & French, K. R. (1992). The cross‐section of expected stock returns. the Journal of Finance, 47(2), 427-465.
  • Giannetti, M., & Simonov, A. (2006). Which investors fear expropriation? Evidence from investors' portfolio choices. The Journal of finance, 61(3), 1507-1547.
  • Glossary, O. E. C. D. (2003). OECD Glossary of Statistical Terms.
  • Gökkent, Gıyas M. (1997). Theory of Foreign Portfolio Investment. Florida International University. Phd dissertation.
  • Greenwood, J., & Jovanovic, B. (1989). Financial development, growth, and the distribution of income (No. w3189). National Bureau of Economic Research.
  • Hao, J. (2004, January). Foreign ownership and equity returns: Evidence from Japan. In 17th Australasian Finance and Banking Conference (pp. 15-17).
  • Hargis, K. (1998). Do foreign investors stimulate or inhibit stock market development in Latin America?. The Quarterly Review of Economics and Finance, 38(3), 303-318.
  • Hargis, K., & Ramanlal, P. (1998). When does internationalization enhance the development of domestic stock markets?. Journal of
  • Financial Intermediation,7(3), 263-292. Holtz-Eakin, D., Newey, W., & Rosen, H. S. (1988). Estimating vector autoregressions with panel data. Econometrica: Journal of the Econometric Society, 1371-1395.
  • IMF (1998), World Economic Outlook. http://www.imf.org/external/pubs/ft/weo/weo0598/pdf/0598ch1.pdf.
  • IMF (2013), Annual Report. https://www.imf.org/external/pubs/ft/ar/2013/eng/pdf/ar13_eng.pdf.
  • Kandır, S. Y. (2008). Yabancı Yatırımcıların Türkiye’deki Yatırım Tercihlerinin Araştırılması. Muhasebe ve Finansman Dergisi, 38, 199-209.
  • Kang, H. C., Lee, D. W., & Park, K. S. (2010). Does the difference in valuation between domestic and foreign investors help explain their distinct holdings of domestic stocks?. Journal of Banking & Finance, 34(12), 2886-2896.
  • Kang, J. K. (1997). Why is there a home bias? An analysis of foreign portfolio equity ownership in Japan. Journal of Financial Economics, 46(1), 3-28.
  • Kargi, B. (2014). Portfolio in Turkish economy, and a long termed relation between foreign direct investments and the growth, and the structural breakage analysis (1980-2012). Journal of Academic Research in Economics, 6(1), 70-81.
  • King, R. G., & Levine, R. (1993). Finance and growth: Schumpeter might be right. The quarterly journal of economics, 717-737.
  • La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (2000). Investor protection and corporate governance. Journal of financial economics, 58(1), 3-27.
  • Leuz, C., Lins, K. V., & Warnock, F. E. (2010). Do foreigners invest less in poorly governed firms?. Review of Financial Studies, 23(3), 3245
  • Levine, R., & Zervos, S. (1996). Stock market development and long-run growth. The World Bank Economic Review, 10(2), 323-339.
  • Liljeblom, E., & Löflund, A. (2005). Determinants of international portfolio investment flows to a small market: empirical evidence. Journal of multinational financial management, 15(3), 211-233.
  • Lin, C. H., & Shiu, C. Y. (2003). Foreign ownership in the Taiwan stock market—an empirical analysis. Journal of Multinational Financial Management, 13(1), 19-41.
  • Merton, R. C. (1987). A simple model of capital market equilibrium with incomplete information. The journal of finance, 42(3), 483-510.
  • Min, B. S., & Bowman, R. G. (2015). Corporate governance, regulation and foreign equity ownership: Lessons from Korea. Economic Modelling, 47, 145-155.
  • Nickell, S. (1981). Biases in dynamic models with fixed effects. Econometrica: Journal of the Econometric Society, 1417-1426.
  • Opler, T. C., & Titman, S. (1994). Financial distress and corporate performance. The Journal of Finance, 49(3), 1015-1040.
  • Pagano, M. (1989). Trading volume and asset liquidity. The Quarterly Journal of Economics, 255-274.
  • TCMB. (2005). Ödemeler Dengesi Raporu.
There are 39 citations in total.

Details

Primary Language TU
Journal Section Articles
Authors

Yilmaz Yildiz

Mehmet Karan

Publication Date June 30, 2016
Published in Issue Year 2016 Volume: 3 Issue: 2

Cite

APA Yildiz, Y., & Karan, M. (2016). FIRM LEVEL DETERMINANTS OF FOREIGN PORTFOLIO INVESTMENTS IN TURKEY: A DYNAMIC PANEL REGRESSION ANALYSIS APPROACH. Journal of Economics Finance and Accounting, 3(2), 126-141.

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