Foreign ownership and financial information

Purpose - The purpose of this paper is to examine the foreign ownership patterns in local stocks in an emerging capital market, i.e. the Istanbul stock exchange (ISE), to derive insights into the linkage between foreign investors' equity-level preferences and the information provided by the corresponding firm's financial statements. Design/methodology/approach - The data consists of foreign ownership share in non-financial stocks over the period 2004-2008 in the ISE. Given the time-series cross-sectional span of our data set, we run our regression analyses of the foreign ownership of Turkish stocks on various firm-specific financial characteristics. Findings - Our analyses suggest that foreign investors are more likely to hold shares in firms with larger market capitalization and those with low leverage and book-to-market ratios. Overall, the results provide suggestive evidence on the asymmetric information hypothesis between local and non-local investors and, accordingly, useful insights into the equity home bias puzzle. Practical implications - From a practical viewpoint, understanding the impact of firm-level characteristics on foreign investors' preferences may provide valuable insights about the reasons and timing of foreign inflows or outflows of capital, to people at managerial positions. Originality/value - The examination of the foreign ownership at a security level is expected to contribute into the ongoing debate on the determinants of cross-border portfolio holdings, in general, and the reasons of the persistent home bias worldwide, in particular.