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Partial Ownership, Financial Constraint, and FDI

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  • ITO Tadashi
  • Michael RYAN
  • TANAKA Ayumu

Abstract

Using matched firm-bank-FDI data, this study explores the possibility that firms with stricter financial constraints tend to choose joint ventures with a lower ownership ratio for their foreign subsidiaries. In addition, this study tests the hypothesis that parent firms with banks as their largest shareholders have a lower stake in their foreign subsidiaries because banks are risk averse. The empirical analysis confirms that foreign subsidiary ownership ratios are negatively associated with parent firms' debt ratios. Moreover, this study finds that the greater the degree to which the parent firm has bank shareholders, the lower the parent firm's ownership share in its subsidiaries. However, this tendency weakens when a bank has an overseas subsidiary in the host country, presumably because the information asymmetry is mitigated.

Suggested Citation

  • ITO Tadashi & Michael RYAN & TANAKA Ayumu, 2023. "Partial Ownership, Financial Constraint, and FDI," Discussion papers 23020, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:23020
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