U.S. investors are biased against Quebec-based companies, says UBC study

Researchers at the UBC Sauder School of Business have concluded that international investors are biased against companies from Quebec, finding that holdings in Quebec firms by investors from the United States are on average one-quarter less than investments in companies from other provinces.

Although Quebec’s economy has always been somewhat of a straggler — historically, it has consistently received equalization payments as a have-not province — the province is currently in the midst of a mini economic boom.

Its gross domestic product for 2017 is projected to be at minimum a 2.4 per cent improvement on 2016, something that hasn’t been seen in Quebec for more than a decade. Higher export volumes for Quebec-made goods and a better tax scheme for the middle class have been identified as factors in the comeback, leading to more disposable income for Quebec households and more companies hiring.

Quebec’s unemployment rate sits at a productive 5.8 per cent, according to a report in the Globe and Mail, the lowest it’s been since data became available in 1976, and it’s continuing to fall. In 2016, the province added 85,400 full-time jobs, more than all other provinces combined.

Yet despite the success, investors from other countries have a hard time putting their money into Quebec, as cultural and language differences seem to be playing into investment decisions. That smacks of investor bias, say the authors of a new study published in the journal Management Science, who found that after controlling for differences in firm characteristics, investors from the US were still more hesitant when it comes to la belle province, with investment holdings on average 40 per cent lower than investments in similar firms in other Canadian provinces.

“We found that investors are still sensitive to differences between their domestic language and the language used in the location of foreign investment,” said Russell Lundholm, the study’s lead author and UBC Sauder professor, in a press release. “In the case of Quebec, this bias is surprising given that regulatory filings are prepared in both English and French, and that all Canadian provinces share the same nationality, federal law, stock exchange and accounting standards.”

The researchers looked at the online presence of Quebec companies, concluding that the ones which appeared “more French” and posted a greater proportion of documents online in French suffered more from foreign investor bias. More internationally, the study showed that while investors in the United Kingdom also exhibited investor bias against Quebec, the same did not hold for investors from France, showing that the language factor plays a undeniable role.

“Our results indicate that investors are still sensitive to differences between their domestic language and the language used in the location of the foreign investment,” say the authors. “This investor bias has a significant impact on firms in Quebec.”

The authors say even though Quebec firms are taking proactive measures to combat the investor slant, by hiring CEOs with experience in the US, for example, or by appointing board members who reside in the US, these actions do not seem to be these actions do not seem to be enough to eliminate the foreign investor bias.

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