The doctoral dissertations of the former Helsinki University of Technology (TKK) and Aalto University Schools of Technology (CHEM, ELEC, ENG, SCI) published in electronic format are available in the electronic publications archive of Aalto University - Aaltodoc.

Foreign Ownership of Firms and the European Stock Markets

Jani Hursti

Dissertation for the degree of Doctor of Science in Technology to be presented with due permission of the Department of Industrial Engineering and Management for public examination and debate in Auditorium TU1 at Helsinki University of Technology (Espoo, Finland) on the 29th of June, 2006, at 10.00.

Dissertation in PDF format (ISBN 951-22-8240-2)   [7681 KB]
Dissertation is also available in print (ISBN 951-22-8239-9)


This dissertation examines foreign ownership of firms on the European stock markets from four viewpoints: those of foreign investors, domestic investors, companies, and stock exchanges. The dissertation offers the academic community new data and analysis of the relatively narrowly studied topic of foreign ownership. It also studies previously researched anomalies like home bias from new directions, including companies as active agents who demonstrate home bias in listing decisions and stock exchanges as firms that must cope with the behavior and preferences of foreign investors. The findings discussed in this dissertation contribute to the literature on investor behavior, initial public offerings, and share trading as well as offering practical insights on the development of European financial market in the 1990s.

A panel data analysis is used to study the preferences of foreign investors by assessing which firms foreign investors overweight compared to domestic investors. The results show that foreign ownership is highest in large companies, share classes with high turnover, shares that have performed well in the past, and shares of firms with a low return on equity. Investor preference is also shown to have a significant impact on listing decisions. A comparative study of companies that have been listed on the national exchange of their home country and those listed in a foreign market demonstrates that ownership by foreign pre-IPO investors is strongly associated with foreign initial public offerings. The results show not only that foreign IPOs are made very seldom but also that when a foreign IPO is performed its target market is associated with the home country of the largest owners.

The challenges imposed for stock exchanges by home bias are evaluated through a case study of the now discontinued pan-European stock exchange EASDAQ. The results show that, while firm-specific factors are important for the liquidity of individual shares, the nationality of the exchange where shares are listed is a significant determinant of share turnover. Finally, the dissertation shows that publicly available monthly aggregate foreign holding percentages can be used to construct a trading strategy for domestic investors but offers no premium that would not be explained by well-known models.

Keywords: stock exchange, initial public offerings, foreign listing, foreign ownership, panel data analysis, investment strategy, investment style, venture capital, financial resources, liquidity, exit market, tracking portfolio, factor model

This publication is copyrighted. You may download, display and print it for Your own personal use. Commercial use is prohibited.

© 2006 Helsinki University of Technology

Last update 2011-05-26