Foreign Institutional Holdings and Value Relevance in Stock Valuation
Date Issued
2009
Date
2009
Author(s)
Liu, Si-Min
Abstract
Following Taiwan’s deregulation of foreign investor’s stock holdings limits in 2001, the increase in the level of foreign institutional investment has posed great opportunity for Taiwan accounting academia to study investment behaviors, holding preferences of this new set of trader and its impact on Taiwan stock market. This study aims to study three topics: first, trend of value relevance in Taiwan from 1994 to 2007; second, the relationship between foreign institutional holdings and the extent investors utilize accounting numbers in stock valuation; and third, the roles foreign institutional investors play in their investees. y market valuation regression models, this study empirically shows that trend of value relevance becomes steadier and higher after 2001; furthermore, higher level of foreign institutional holdings can elevate investors’ reliance on earnings (equity book values) when valuing profit (loss) firms. In addition, this study also suggests that foreign institutional investors not only play fiduciary roles who self select into more financial healthy firm in the very first place; on the other hand, they also play governance roles that have implication of a firm’s long-term profitability. However, in what way and to what extent foreign institutional investors dynamically affect their investees’ operation prospects worth further investigation.
Subjects
foreign institutional investors
value relevance
stock valuation
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