Do Foreign Institutional Investors Reward Transparency and Disclosure

Corporate governance has emerged as a leading investment criterion for institutional investors with the rise of cross-border portfolio flows, especially for markets with weak investor protection. This study provides firm-level evidence on the relationship between the level of foreign institutional investment and the transparency and disclosure performance of companies listed on the Istanbul Stock Exchange. We develop a self-constructed transparency and disclosure index, consisting of voluntary and mandatory components, and find that only voluntary disclosure is positively associated with foreign institutional investment. We conclude that firms that operate in markets with lower governance standards can indeed attract more institutional investment through better disclosure, beyond what is required by regulations.JEL Classification: G32, G34