Impact of the QFII Scheme on Investment-Cash Flow Sensitivity

• Main Authors: Tzu-Yun Tseng, 曾子耘
• Other Authors: Jung-Hua Hung
• Format: Others
• Language: en_US
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/55862318701993788471

博士 === 國立中央大學 === 企業管理研究所 === 97 === Starting in the 1980s, developing economies have striven to mature at an ever-quickening pace to keep step with trends of liberalization and globalization. Several kinds of financial liberalization measures have been employed to attract foreign capital. To soften the impact of direct foreign investment on domestic capital market, several developing countries have opted for a QFII (Qualified Foreign Institutional Investor) scheme to attract foreign capital. Taiwan is a notable example. This scheme allowed foreign institutional investors to directly invest in securities markets within authorized investment quotas. This paper examines Taiwan’s QFII experience so as to determine whether the implementation of such a policy has helped reduce corporate investment-cash flow sensitivity. Our samples are taken from companies listed on the Taiwan Stock Exchange, and our data retrieved from the Taiwan Economic Journal (TEJ) data bank. The research period begins January 1, 1988 and ends December 31, 2003, covering Taiwan’s pre-QFII period (1988-1990) and the entire period of the QFII experience (1991-2003). A total of 75 listed firms satisfy the sample criteria. We use regression analysis as our research method. Additionally, we also conduct a standard panel regression technique to control individual effects. Empirical results suggest that the foreign funds from QFIIs do help relax investment-cash flow sensitivity, especially for the low foreign investment ratio, small firm size and non-MSCI Taiwan Index component groups which are more financially constrained before openness. For developing countries that plan to attract foreign capital, the QFII scheme is an attractive interim institutionalization strategy, capable of compensating for capital market imperfections and relaxing firms’ investment-cash flow sensitivity.