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FDI, financial constraint, and partial ownership

Author

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  • Ito, Tadashi
  • Ryan, Michael
  • Tanaka, Ayumu

    (Aoyama Gakuin University)

Abstract

This study uses matched firm-bank-FDI data from 1989 to 2016 to explore how a firm's financial constraints affect its foreign affiliate ownership structure choice. Importantly, it tests the hypothesis that parent firms with banks as their largest shareholders hold lower ownership shares in their foreign subsidiaries, in part due to typical bank risk-averse behavior. The empirical analysis confirms that foreign subsidiary ownership ratios are negatively associated with parent firms’ debt ratios. Moreover, this study finds evidence that greater bank ownership of the investing parent leads to lower foreign affiliate ownership shares. However, this result is not robust to two specifications: "crisis times" when bank lending is greatly restricted to all borrowers, and a follow-the-customer relationship where the bank already has an overseas subsidiary in the host country.

Suggested Citation

  • Ito, Tadashi & Ryan, Michael & Tanaka, Ayumu, 2023. "FDI, financial constraint, and partial ownership," SocArXiv 9djup_v1, Center for Open Science.
    • Handle: RePEc:osf:socarx:9djup_v1
    DOI: 10.31219/osf.io/9djup_v1
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