Shareholder protection, ownership concentration and FDI

TY - JOUR

T1 - Shareholder protection, ownership concentration and FDI

AU - Lskavyan, Vahe

AU - Spatareanu, Mariana

PY - 2011/1

Y1 - 2011/1

N2 - 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.

AB - 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.

KW - FDI

KW - Ownership concentration

KW - Shareholder protection

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U2 - https://doi.org/10.1016/j.jeconbus.2010.05.002

DO - https://doi.org/10.1016/j.jeconbus.2010.05.002

M3 - Article

SN - 0148-6195

VL - 63

SP - 69

EP - 85

JO - Journal of Economics and Business

JF - Journal of Economics and Business

IS - 1

ER -