This thesis draws motivation from the stylized fact that investors do not diversify their investments well enough to reap the benefits of international diversification. Hence, it empirically examines and provides new insights into three different aspects related to suboptimal international investments: determinants of suboptimal foreign allocation, the impact of such suboptimal allocation on the cost of debt, and a possible avenue to enhance the level of foreign investment. The first empirical chapter identifies that though both economic and non-economic factors are important in driving foreign bias in bond investments, it is the non-economic factors that are more important in influencing the bias. This chapter further shows that the importance of non-economic factors gets augmented during periods of debt crisis whereas that of economic factors remain unchanged. The second empirical chapter demonstrates that foreign bond bias has a positive impact on the cost of debt: higher level of foreign bias in a market leads to a lower cost of debt in that market. The third empirical chapter provides evidence that enforcement of existing corporate governance regulations in firms leads to higher foreign ownership in firms. The findings presented in this thesis are robust to various checks and are of interest to policymakers, academics, and firm owners. Being aware of the costs associated with suboptimal foreign investment and being cognizant of the various economic and non-economic factors that can influence foreign allocation can help formulate appropriate policies to enhance foreign investments closer towards the prescribed optimal level. The findings that better corporate governance is associated with higher level of foreign investment is of particular interest to firm owners, especially in emerging markets. This thesis also provides avenues for further research and this can be beneficial to academics.
|Date of Award||1 Oct 2016|
- University Of Strathclyde
|Supervisor||Andrew Marshall (Supervisor) & Chandra Thapa (Supervisor)|