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Multinational Ownership and Subsidiary Investment

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Author Info
Wendy Carlin
Andrew Charlton
Colin Mayer

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Abstract

This paper examines how foreign ownership affects the investment decisions of subsidiary firms using a new dataset of listed-parent − listed-subsidiary pairs. We find that improvements in the investment opportunities of parent firms have a negative effect on the investment of their subsidiaries, after controlling for the investment opportunities of the subsidiary, which can be independently observed. This provides evidence of internal capital markets in multinationals that reallocate funds towards units with better investment opportunities. We also find that the negative effect of the parent’s investment opportunities on subsidiary investment is greatest where the relationship is more arms-length, i.e. where parents have modest ownership stakes, are distant from their subsidiaries or when subsidiaries – as well as parents – operate in well developed financial markets.

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Paper provided by Oxford Financial Research Centre in its series OFRC Working Papers Series with number 2008fe05.

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Length: 42
Date of creation: 2008
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Handle: RePEc:sbs:wpsefe:2008fe05

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Web page: http://www.finance.ox.ac.uk
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Related research
Keywords: Investment; Internal Capital Markets; Foreign Ownership;

Find related papers by JEL classification:
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy

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