Gautam Bose () (School of Economics, The University of New South Wales) Sudipto Dasgupta () (Department of Finance, Hong Kong University of Science and Technology) Arghya Ghosh () (School of Economics, The University of New South Wales)
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This paper analyzes the optimality of policy specifications used to regulate the acquisition and operation of local firms by multinational enterprises (MNE). We emphasize the consequence of such regulation on the price of the domestic firm in the market for corporate control. We show that it is optimal to impose ceilings on foreign ownership of domestic firms when the government's objective is to maximize domestic shareholder profits. While the optimal ceiling is high enough for the MNE to gain control of the domestic firm, it nevertheless influences the price that the MNE must pay for the domestic firm's shares to the advantage of the domestic shareholders. Restrictions on transfer pricing are either irrelevant or strictly suboptimal. The consequences of alternative specifications of the government's objective function are also analyzed.
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Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number
2008-22.
Find related papers by JEL classification: F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
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