The investment behavior of Qualified Foreign Institutional Investors in China

Abstract

Using data from Chinese listed firms, this paper examines the investment behavior of Qualified Foreign Institutional Investors (QFIIs). QFIIs have a preference for large well-known firms with some element of state ownership, lower liability levels and greater turnover capacity. Furthermore, the presence of QFIIs in Chinese firms is associated with better levels of corporate operating performance. We show that this positive relationship is more pronounced, the greater the international investors level of commitment, in terms of investment size and horizon. Our results highlight the heterogeneity of foreign institutional investors and support the view that foreign institutional investors in emerging markets provide an important source of managerial oversight. Our results are particularly noteworthy given all QFIIs in China represent small overall holdings, with shareholdings below blockholder thresholds.