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Foreign ownership and investment efficiency: new evidence from an emerging market

Author

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  • Quoc Trung Tran

Abstract

Purpose - This paper investigates the effect of foreign ownership on corporate investment efficiency in an emerging market. Design/methodology/approach - This paper employs the investment-investment opportunities sensitivity to proxy for investment efficiency. Corporate investment and investment opportunities are measured by capital expenditure and Tobin'sQrespectively. Control variables include state ownership, firm profitability, cash flow, financial leverage, firm size, bank debt, asset tangibility and financial distress. The research sample includes 5,502 firm-years from 621 firms listed in Vietnamese stock market from 2007 to 2017. Findings - We find that foreign ownership negatively affects corporate investment efficiency. Furthermore, we continue to examine the effects of foreign ownership with financially unconstrained and constrained firms that are classified based on the annual medians of Kaplan and Zingales (1997) score, firm size and dividend payout ratio. We find that the negative relationship between foreign ownership and investment efficiency is stronger in financially unconstrained. Originality/value - Prior research shows that foreign ownership is positively related to corporate investment efficiency. However, in Vietnamese stock market, foreign investors may prefer safe business activities as a response to uncertainty in the business environment, ineffective legislations on corporate governance and their informational disadvantage. Therefore, in this paper, we argue that foreign ownership negatively affects Vietnamese firms' investment efficiency. Risk-adverse foreign investors make firms lose some profitable investment opportunities and thus decrease their investment efficiency.

Suggested Citation

  • Quoc Trung Tran, 2020. "Foreign ownership and investment efficiency: new evidence from an emerging market," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 15(6), pages 1185-1199, March.
    • Handle: RePEc:eme:ijoemp:ijoem-07-2019-0573
    DOI: 10.1108/IJOEM-07-2019-0573
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    Citations

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    Cited by:

    1. Rayed Obaid Hammoud Alobaid & Ameen Qasem & Adel Ali Al-Qadasi, 2024. "Corporate Social Responsibility, Ownership Structure, and Firm Investment Efficiency: Evidence from the Saudi Stock Market," Sustainability, MDPI, vol. 16(15), pages 1-25, August.
    2. Trinh, Quoc Dat & Tran, Quoc Trung & Le, Son Dai & Nguyen, Thi Phuong Dung, 2024. "Local corruption and SME investment," Finance Research Letters, Elsevier, vol. 65(C).
    3. Mian, Rehman U. & Mian, Affan, 2023. "Foreign institutional investment horizon and investment efficiency in emerging markets," Economics Letters, Elsevier, vol. 232(C).
    4. Rahim, Imad & Mian, Rehman U. & Mian, Affan, 2024. "Country-level heterogeneity in foreign institutional investment horizons and firm value," International Review of Financial Analysis, Elsevier, vol. 92(C).

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