Country-level heterogeneity in foreign institutional investment horizons and firm value

Abstract

Extant literature on the influence of short- or long-term foreign institutional investors on corporate valuation and strategic decisions implicitly assumes their monitoring role to be homogeneous across all portfolio countries. This paper examines the valuation impact of country-level heterogeneity in foreign institutional investment horizons using a large sample from 32 countries. Our findings show that foreign institutional investors with longer country-level investment horizons enhance firm value, especially in countries with less effective investor protection and firms with higher information asymmetry and susceptibility to agency problems. The results also indicate that the country-specific informational scales attained through longer horizons within a portfolio country enable foreign institutional investors to bridge the information gap between themselves and local institutions. Overall, this study underscores the importance of recognizing the differential monitoring role played by foreign institutional investors across different countries within their portfolios.