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Property rights institutions, foreign investment, and the valuation of multinational firms

Author

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  • Lin, Leming
  • Mihov, Atanas
  • Sanz, Leandro
  • Stoyanova, Detelina

Abstract

We study the effect of property rights institutions in host countries, the institutions protecting investors from expropriation by host country agents, on the geographic structure and valuation of US multinational corporations (MNCs). We provide firm-level evidence that better property rights attract investment from MNCs. We disentangle the effects of the Stulz (2005) “twin agency problems” in the context of foreign direct investment and show that our results are not driven by legal institutions protecting investors from expropriation by corporate insiders. Further, we show that changes in the quality of property rights in locations where MNCs operate have material impact on MNCs’ valuations.

Suggested Citation

  • Lin, Leming & Mihov, Atanas & Sanz, Leandro & Stoyanova, Detelina, 2019. "Property rights institutions, foreign investment, and the valuation of multinational firms," Journal of Financial Economics, Elsevier, vol. 134(1), pages 214-235.
    • Handle: RePEc:eee:jfinec:v:134:y:2019:i:1:p:214-235
    DOI: 10.1016/j.jfineco.2019.03.001
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    4. Cascino, Stefano, 2021. "Discussion of: the state expropriation risk and the pricing of foreign earnings," LSE Research Online Documents on Economics 112473, London School of Economics and Political Science, LSE Library.
    5. Tiago Loncan, 2021. "The Effects of Project Scale on FDI Location Choices: Evidence from Emerging Economies," Management International Review, Springer, vol. 61(2), pages 157-205, April.
    6. Trinh, Quoc Dat & Haddad, Christian & Salameh, Elie, 2023. "Financial institutional blockholders and earnings quality: Do blockholders contestability and countries' institutions matter?," International Review of Financial Analysis, Elsevier, vol. 87(C).
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    9. Tag, Mehmet Nasih & Degirmen, Suleyman, 2022. "Economic freedom and foreign direct investment: Are they related?," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 737-752.

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    More about this item

    Keywords

    Multinational corporations; Foreign direct investment; Property rights institutions; Investor protection; Firm valuation;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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