Impact of the QFII Scheme on Investment-Cash Flow Sensitivity

Taiwan is an important emerging economy which has adopted a progressive strategy to open up its securities markets, mainly through the QFII (Qualified Foreign Institutional Investor) scheme. This paper examines Taiwan's QFII experience so as to determine whether the implementation of such a policy has helped reduce corporate investment-cash flow sensitivity. Empirical results suggest that the launching of the QFII program as an interim institutionalization strategy to attract foreign capital into Taiwan's securities markets has been successful in relaxing corporations' investment-cash flow sensitivity.