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What Makes Firms in Emerging Markets Attractive to Foreign Investors? Micro-evidence from the Czech Republic

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  • Peter Toth
  • Petr Zemcik

Abstract

We use a panel of Czech firms to enhance existing literature where the dependent variable is foreign ownership. In our estimation, we control for endogeneity and unobserved effects using standard methods complemented by tests for heterogenous Granger-causality. We also model foreign ownership as a response variable in a hazard model and consider sorting by foreign owners rather then by domestic firms. We find that foreigners target firms with a greater ownership concentration in industries’s with higher level of risk, in countries with lower labor costs and corporate income taxes.

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Bibliographic Info

Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp294.

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Date of creation: Mar 2006
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Handle: RePEc:cer:papers:wp294

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Keywords: foreign ownership; endogeneity; causality; fixed effects; hazard model; truncated sample;

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  1. Lin, Chihuang H. & Shiu, Cheng-Yi, 2003. "Foreign ownership in the Taiwan stock market--an empirical analysis," Journal of Multinational Financial Management, Elsevier, Elsevier, vol. 13(1), pages 19-41, February.
  2. Anderson, Christopher W & Jandik, Tomas & Makhija, Anil K, 2001. "Determinants of Foreign Ownership in Newly Privatized Companies in Transition Economies," The Financial Review, Eastern Finance Association, Eastern Finance Association, vol. 36(2), pages 161-75, May.
  3. Makhija, Anil K & Spiro, Michael, 2000. "Ownership Structure as a Determinant of Firm Value: Evidence from Newly Privatized Czech Firms," The Financial Review, Eastern Finance Association, Eastern Finance Association, vol. 35(3), pages 1-31, August.
  4. Hamilton, James D & Gang, Lin, 1996. "Stock Market Volatility and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 11(5), pages 573-93, Sept.-Oct.
  5. Cull, Robert & Matesova, Jana & Shirley, Mary, 2002. "Ownership and the Temptation to Loot: Evidence from Privatized Firms in the Czech Republic," Journal of Comparative Economics, Elsevier, vol. 30(1), pages 1-24, March.
  6. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, Elsevier, vol. 115(1), pages 53-74, July.
  7. Anete Pajuste, 2002. "Corporate Governance and Stock Market Performance in Central and Eastern Europe: A Study of nine countries, 1994-2001”," Working Papers, CENTRE FOR THE STUDY OF ECONOMIC AND SOCIAL CHANGE IN EUROPE,School of Slavonic and East European Studies,University College London (SSEES,UCL) 22, CENTRE FOR THE STUDY OF ECONOMIC AND SOCIAL CHANGE IN EUROPE,School of Slavonic and East European Studies,University College London (SSEES,UCL).
  8. Simeon Djankov, 1999. "Ownership Structure and Enterprise Restructuring in Six Newly Independent States," Comparative Economic Studies, Palgrave Macmillan, vol. 41(1), pages 75-95, April.
  9. Hamilton, James D. & Susmel, Raul, 1994. "Autoregressive conditional heteroskedasticity and changes in regime," Journal of Econometrics, Elsevier, Elsevier, vol. 64(1-2), pages 307-333.
  10. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, Elsevier, vol. 33(1), pages 3-56, February.
  11. Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, Elsevier, vol. 45(1-2), pages 39-70.
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