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Which Investors Fear Expropriation? Evidence from Investors' Portfolio Choices




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    • Giannetti is from the Stockholm School of Economics, CEPR, and ECGI. Simonov is from the Stockholm School of Economics. We are grateful for comments by an anonymous referee, Rob Stambaugh, George Allayannis, Michael Brennan, Mike Burkart, Magnus Dahlquist, Mara Faccio, Eugene Kandel, Marco Pagano, Raghu Rau, Göran Robertsson, René Stulz, Patrik Säfvenblad, Paul Söderlind, Ingrid Werner, Avi Wohl, Luigi Zingales, and seminar participants at the 2004 Western Finance Association meetings, the NBER Conference on Corporate Governance, the Chicago Federal Reserve Bank Conference on Banking Structure, the Stockholm School of Economics, the 2003 European Finance Association meetings, the 2nd Asian Corporate Governance Conference in Seoul, the CEPR European Summer Symposium in Financial Markets in Gerzensee, the European Central Bank Conference on Financial Integration, the Georgia Tech International Finance Conference, the 2003 European Economic Association meetings, the Institute of International Economic Studies in Stockholm, London Business School, the Norwegian School of Management, HEC Paris, Copenhagen Business School, University of Padua, and CEFIR in Moscow. We are also grateful to Mattias Nilsson and especially Sven-Ivan Sundqvist for making available some of the data. The authors acknowledge financial support from the Bank of Sweden Tercentenary Foundation, the Jan Wallander and Tom Hedelius Foundation, and the Stockholm Institute for Financial Research. Of course, any errors or shortcomings remain our own.


Using a data set that provides unprecedented detail on investors' stockholdings, we analyze whether investors take the quality of corporate governance into account when selecting stocks. We find that all categories of investors (domestic and foreign, institutional and small individual) who generally enjoy only security benefits are reluctant to invest in companies with weak corporate governance. In contrast, individuals connected with company insiders are more likely to invest in weak corporate governance companies. These findings suggest that it is important to distinguish between investors who enjoy private benefits or access private information, and investors who enjoy only security benefits.