The Limits of Financial Globalization

62 Pages Posted: 17 May 2005

See all articles by René M. Stulz

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

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Abstract

Despite the dramatic reduction in explicit barriers to international investment activity over the last 60 years, the impact of financial globalization has been surprisingly limited. I argue that country attributes are still critical to financial decision-making because of "twin agency problems" that arise because rulers of sovereign states and corporate insiders pursue their own interests at the expense of outside investors. When these twin agency problems are significant, diffuse ownership is inefficient and corporate insiders must co-invest with other investors, retaining substantial equity. The resulting ownership concentration limits economic growth, financial development, and the ability of a country to take advantage of financial globalization.

JEL Classification: F36, F30, G32, G10, G11, G15

Suggested Citation

Stulz, Rene M., The Limits of Financial Globalization. ECGI - Finance Working Paper No. 75/2005, Dice Center Working Paper No. 2005-1, Available at SSRN: https://ssrn.com/abstract=648122

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

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