Three essays on institutions, financial markets and foreign direct investment

Abstract

This dissertation is composed of three essays in financial economics and development economics. The underlying theme in three essays is about the impact of institution quality on financial markets and foreign direct investment (FDI). There are five chapters included in this dissertation. Chapter one is the introduction. Chapter two of my dissertation investigates the connection between freedom of the press and equity returns in emerging market firms. Freedom of the press is argued to affect systematic risk in financial markets and thus, has impact on returns of financial assets. The study reveals that there is significant connection between freedom of the press and equity returns. My two other chapters study a different angle of institutional quality: corruption. Chapter three examines the relationship between corruption heterogeneity between two countries and bilateral FDI between the two. The results suggest that foreign investors tend to choose an economy with similar corruption level to invest. In chapter four, analysis is carried further to investigate the effect of FDI from a corrupt country on host country corruption level. The empirical results indicate that FDI from a corrupt country will increase the corruption level in host country. Finally, chapter 5 summarizes the major findings and policy implications and offers concluding remarks.