||Investment in China and Investor Protection: The evidence of US International Fund
||Graduate Institute of Finance & Banking
Mutual Fund Preference
The aim of this study is to survey how US international mutual fund managers allocate their assets when they strive to profit from investing in Great China Economic Entity (GCEE) and investigate whether corporate governance influences the managers’ selection of stocks. We define GCEE regions as China, Hong Kong and Taiwan. The survey shows that their major preference is US local stocks and they are unwilling to invest directly in GCEE stock market. Better investor protection and home bias can explain this phenomenon.
As the result of the rarity of investment in GCEE stock market, we concentrate on US domestic stocks and classify them as US Asia-concept stocks and other US non-Asia -concept stocks to examine whether mutual fund managers will tend to indirectly invest in GCEE by means of US Asia-concept stocks. Average Institutional Holdings (AIH) and Aggregated Institutional Ownership (AIO) are used to proxy mutual fund holdings.
The AIH evidence shows US Asia-concept stocks are the managers’ preference and they overweigh firms with higher efficient board, less independent directors and less insider ownership. Furthermore, better performance, lower leverage, larger size of firm and higher risky investment are positively related to AIH and AIO. In terms of dividend policy, high dividend yield stocks are their liking. However, the AIO results manifest corporate governance has no significantly explanatory power.
Table of Contents
Chapter 1 Introduction 1
1.1 Motivation 1
1.2 Objectives 3
1.3 Major findings 4
1.4 Contributions 5
Chapter 2 Literature Review 6
2.1 Mutual Fund Managers’ Preference 6
2.2 Home Bias 8
2.3 Corporate governance, Investor Protection and Mutual Fund Managers’
2.4 The development of Hypotheses 13
Chapter 3 Data and Sample Selection 16
3.1 Data and Sample Description 16
3.2 Investment Method Introduction 17
3.3 Survey Results 21
Chapter 4 Empirical Model and Methodology 23
4.1 Methodology 23
4.2 Model 24
4.2 Variable Definition 26
4.2.1 Definition of Dependent Variables 26
4.2.2 Definition of Governance Variables 27
4.2.3 Definition of Control Variables 29
4.4 Statistics Description 31
Chapter 5 Empirical Results 33
5.1 The Tobit Regression of Average Institutional Holdings (AIH) 33
5.2 The Tobit Regression of Aggregated Institutional Ownership (AIO) 35
5.3 The Tobit Regression of Average Institutional Holdings (AIH) and Aggregated Institutional Ownership (AIO) with interactive variables 36
Chapter 6 Summary and Conclusions 39
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