Foreign Institutional Ownership and Firm Value: Evidence of “Locust Foreign Capital” in Brazil

Abstract

ABSTRACT In this paper, we investigate the role of institutional investors on firm value in Brazil. Given this purpose, we construct a longitudinal dataset of Brazilian companies in which 2,019 distinct institutional investors from 47 countries had equity holdings from 2009 to 2018. In contrast with previous studies, panel data regressions indicate that foreign institutional ownership decreases corporate value, even when we mitigate for endogeneity concerns through the generalized method of moments estimator. Additionally, the negative effect of foreign institutional ownership on firm value is greater during times of high political uncertainty. Our findings suggest that foreign institutional investors may induce family-controlling shareholders to adopt short-term strategies that destroy company value, which is consistent with the “locust foreign capital” view.