This study aims to explore how financial reporting quality (FRQ) influences foreign portfolio investment in equity markets, emphasizing the moderating effect of financial liberalization.
This study uses a panel data set of 461 firms spanning the period 2008–2021. The study uses the feasible general least squares, generalized linear model with a logit link and the binomial family, generalized method of moments and propensity score matching in regression analyses.
Foreign investors are more inclined to invest in firms exhibiting higher FRQ. However, the influence of FRQ on foreign investment diminishes as financial liberalization increases.
Over time, most emerging markets have reformed their economies, which include the removal of investment barriers to attract more foreign investment to their local equity markets. The findings are particularly significant given the increasing number of countries liberalizing their financial markets to integrate into the global economy. The empirical findings provide valuable insights for researchers, investors and policymakers. Investors can apply these findings to their informed investment decisions. Policymakers can use these results to develop policies that more effectively regulate financial markets.
To the best of the authors’ knowledge, this study is the first to examine the moderating effect of financial liberalization on the relationship between FRQ and foreign investment.
