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Whole vs. shared ownership of foreign affiliates

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Author Info

  • Raff, Horst
  • Ryan, Michael
  • Stähler, Frank

Abstract

This paper studies why multinational firms often share ownership of a foreign affiliate with a local partner even in the absence of government restrictions on ownership. We show that shared ownership may arise, if (i) the partner owns assets that are potentially important for the investment project, and (ii) the value of these assets is private information. In this context shared ownership acts as a screening device. Our model predicts that the multinational's ownership share is increasing in its productivity, with the most productive multinationals choosing not to rely on a foreign partner at all. This prediction is shown to be consistent with data on the ownership choices of Japanese multinationals.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 27 (2009)
Issue (Month): 5 (September)
Pages: 572-581

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Handle: RePEc:eee:indorg:v:27:y:2009:i:5:p:572-581

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Web page: http://www.elsevier.com/locate/inca/505551

Related research

Keywords: Foreign direct investment Multinational enterprise Joint venture Productivity;

References

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Citations

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Cited by:
  1. Gattai, Valeria & Natale, Piergiovanna, 2013. "What makes a joint venture: Micro-evidence from Sino-Italian contracts," Review of Financial Economics, Elsevier, vol. 22(4), pages 194-205.
  2. Horst Raff & Joachim Wagner, 2013. "Foreign Ownership and the Extensive Margins of Exports: Evidence for Manufacturing Enterprises in Germany," Working Paper Series in Economics 277, University of Lüneburg, Institute of Economics.
  3. Peter Nunnenkamp & Maximiliano Sosa Andrés, 2013. "Ownership Choices of Indian Direct Investors: Do FDI Determinants Differ between Joint Ventures and Wholly-owned Subsidiaries?," Kiel Working Papers 1841, Kiel Institute for the World Economy.

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