Tuesday, November 2, 2010

Foreign Shareholding: A Decomposition Analysis

NIPFP Working Paper 74

Ajay Shah and Ila Patnaik
October 2010


Stulz (2005) has emphasised that for home bias to decline, insiders have to reduce ownership so as to make purchase of shares by foreigners possible. We offer a decomposition in the ownership of shares by foreigners into three parts: the change in insider shareholding, the change in market capitalisation and the change in the fraction of outside shareholding that is held by foreigners. As an example, this decomposition is applied to help understand the sharp change in foreign ownership of Indian firms after 2001.