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Shareholder protection, ownership concentration and FDI

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  • Lskavyan, Vahe
  • Spatareanu, Mariana

Abstract

Host country's weaker legal shareholder protection may make it costlier for parent shareholders to monitor the foreign subsidiary and hold managers accountable in case of misconduct. This prospect may motivate the managers to invest in such foreign environments. However, the agency costs associated with such investments can increase as well. The latter would tend to discourage such FDI. We test this ex ante uncertain relationship using a sample of publicly quoted UK parents that established new, majority owned joint venture subsidiaries in Continental Europe. We find that host country's weak legal shareholder protection discourages FDI. This negative relationship, however, is less important for firms with higher ownership concentration, implying that parent's ownership concentration may be a substitute for host country's weak legal shareholder protection.

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  • Lskavyan, Vahe & Spatareanu, Mariana, 2011. "Shareholder protection, ownership concentration and FDI," Journal of Economics and Business, Elsevier, vol. 63(1), pages 69-85.
    • Handle: RePEc:eee:jebusi:v:63:y:2011:i:1:p:69-85
    DOI: 10.1016/j.jeconbus.2010.05.002
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    4. Rui Wang & Hang (Robin) Luo, 2019. "Does Financial Liberalization Affect Bank Risk-Taking in China?," SAGE Open, , vol. 9(4), pages 21582440198, November.
    5. Samuel Kwaku Agyei & Nathaniel Kwapong Obuobi & Mohammed Zangina Isshaq & Mac Junior Abeka & John Gartchie Gatsi & Ebenezer Boateng & Emmanuel Kwakye Amoah, 2022. "Country-Level corporate governance and Foreign Portfolio Investments in Sub-Saharan Africa: The moderating role of institutional quality," Cogent Economics & Finance, Taylor & Francis Journals, vol. 10(1), pages 2106636-210, December.
    6. Andriosopoulos, Dimitris & Yang, Shuai, 2015. "The impact of institutional investors on mergers and acquisitions in the United Kingdom," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 547-561.
    7. Vidya Sukumara Panicker & Sumit Mitra & Rudra Sensarma, 2016. "Corporate Governance Determinants of FII in Indian IT Firms," Indian Journal of Corporate Governance, , vol. 9(1), pages 1-18, June.
    8. Vishaal Baulkaran & Nathaniel C. Lupton, 2020. "U.S. FDI and Shareholder Rights Protection in Developed and Developing Economies," Multinational Finance Journal, Multinational Finance Journal, vol. 24(3-4), pages 155-182, September.
    9. Peng Xu & Heng Zhang & Guiyu Bai, 2019. "Research on the Differentiated Impact Mechanism of Parent Company Shareholding and Managerial Ownership on Subsidiary Responsive Innovation: Empirical Analysis Based on ‘Principal–Agent’ Framework," Sustainability, MDPI, vol. 11(19), pages 1-17, September.
    10. Lupton, Nathaniel C. & Baulkaran, Vishaal & No, Yeonji, 2022. "Subsidiary staffing, location choice, and shareholder rights effectiveness," Journal of Business Research, Elsevier, vol. 151(C), pages 222-231.

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    More about this item

    Keywords

    Shareholder protection; Ownership concentration; FDI;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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