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Foreign direct investment and downside risk: Evidence from Taiwan

Author

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  • Wang, Li-Hsun
  • Lin, Chu-Hsiung
  • Fung, Hung-Gay
  • Kao, Tzu-Chuan

Abstract

Foreign direct investment (FDI) has become highly popular in recent decades. This study investigates how FDI by Taiwanese firms affects downside risk by considering the fact that FDI firms increase both the revenue and risk in their expedition. The results indicate that downside risk is positively associated with FDI. Further analyses show that downside risks do not change for FDI in Mainland China but increases in other areas. The FDIs in areas other than Mainland China are primarily in tax haven countries and are positively related to agency cost and earnings management, increasing the downside risk. In addition, this study provides evidence that corporate governance reduces downside risk by restricting FDI to less opaque markets.

Suggested Citation

  • Wang, Li-Hsun & Lin, Chu-Hsiung & Fung, Hung-Gay & Kao, Tzu-Chuan, 2019. "Foreign direct investment and downside risk: Evidence from Taiwan," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:pacfin:v:57:y:2019:i:c:s0927538x18302518
    DOI: 10.1016/j.pacfin.2019.01.010
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    Cited by:

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    3. Vagnani, Gianluca & Tian, Jinhuan & Dong, Yan, 2023. "Outward foreign direct greenfield investments and firms predicted long-term stock volatility levels and connectedness. Evidence from China," Finance Research Letters, Elsevier, vol. 58(PC).

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    More about this item

    Keywords

    Downside Risk; FDI; Agency cost; Earnings Management;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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