The Limits of Financial Globalization

  • Author(s): RENÉ M. STULZ
  • Published: Aug 12, 2005
  • Pages: 1595-1638
  • DOI: 10.1111/j.1540-6261.2005.00775.x


Despite the dramatic reduction in explicit barriers to international investment activity over the last 60 years, the impact of financial globalization has been surprisingly limited. I argue that country attributes are still critical to financial decision‐making because of “twin agency problems” that arise because rulers of sovereign states and corporate insiders pursue their own interests at the expense of outside investors. When these twin agency problems are significant, diffuse ownership is inefficient and corporate insiders must co‐invest with other investors, retaining substantial equity. The resulting ownership concentration limits economic growth, financial development, and the ability of a country to take advantage of financial globalization.

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