The Rise of Foreign Ownership and Corporate Governance

Document Type

Book Chapter

Publication Date

12-2025

Abstract

This chapter examines the global rise of foreign share ownership over the past three decades and its relationship to corporate governance. It first documents the dramatic increase in cross-border holdings, showing how technological change, reduced transaction costs, and liberalization of trade and capital markets have weakened traditional impediments to global investment. The chapter then analyzes how greater foreign ownership is promoted by the benefits arising from more diversified portfolios and from savings reallocations from countries rich in savings relative to their investment opportunities to ones poor in savings relative to such opportunities, while it has historically been impeded by information asymmetries across national boundaries, exchange-rate risks, and government restrictions. The chapter goes on to note that better corporate governance and a higher level of foreign ownership are positively associated with each other, and that both theory and empirical studies suggest that the direction of causation runs both ways. It also explores how corporate governance both shapes and is shaped by foreign ownership, with stronger legal and disclosure regimes attracting more foreign shareholders, and with these increased numbers of foreign shareholders, in turn, pressuring firms to adopt better governance. Finally, the chapter demonstrates that the weakening of the factors impeding foreign ownership has acted as a catalyst, encouraging improvements in corporate governance and reinforcing the upward trajectory of foreign ownership worldwide.

Disciplines

Business Organizations Law | Law | Law and Politics

Comments

This book chapter was initially published online December 18, 2025.

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