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Do Foreign Owners Favor Short-Term Profit? Evidence from Germany

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  • Verena Dill
  • Uwe Jirjahn
  • Stephen C. Smith

Abstract

Comparing domestic- and foreign-owned firms in Germany, this paper finds that foreign-owned firms are more likely to focus on short-term profit. This influence is particularly strong if the local managers of the German subsidiary are not sent from the foreign parent company. Moreover, the physical distance between the foreign parent company and its German subsidiary increases the probability of focusing on short-term profit. These findings conform to the hypothesis that foreign owners facing an information disadvantage concerning the local conditions of their subsidiaries are more likely to favor short-term profit. However, we do not identify differences in “short- termism” between investors from “Anglo-Saxon” and other foreign countries; rather, results point in the direction of more general features of international business investment.

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File URL: http://www.uni-trier.de/fileadmin/fb4/prof/VWL/EWF/Research_Papers/2013-01.pdf
File Function: First version, 2013
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Bibliographic Info

Paper provided by University of Trier, Department of Economics in its series Research Papers in Economics with number 2013-01.

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Length: 33 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:trr:wpaper:201301

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Related research

Keywords: Foreign Ownership; Short-Termism; Asymmetric Information; Globalization;

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References

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  1. Kee-Hong Bae & Rene M. Stulz & Hongping Tan, 2005. "Do Local Analysts Know More? A Cross-Country Study of the Performance of Local Analysts and Foreign Analysts," NBER Working Papers 11697, National Bureau of Economic Research, Inc.
  2. R Greg Bell & Igor Filatotchev & Abdul A Rasheed, 2012. "The liability of foreignness in capital markets: Sources and remedies," Journal of International Business Studies, Palgrave Macmillan, vol. 43(2), pages 107-122, February.
  3. Christian Bellak, 2004. "How Domestic and Foreign Firms Differ and Why Does it Matter?," Journal of Economic Surveys, Wiley Blackwell, vol. 18(4), pages 483-514, 09.
  4. Nick Bloom & John Van Reenen, 2010. "Why do Management Practices Differ Across Firms and Countries?," CEP Occasional Papers 26, Centre for Economic Performance, LSE.
  5. George Baker, 2002. "Distortion and Risk in Optimal Incentive Contracts," Journal of Human Resources, University of Wisconsin Press, vol. 37(4), pages 728-751.
  6. Kalok Chan & Vicentiu Covrig & Lilian Ng, 2005. "What Determines the Domestic Bias and Foreign Bias? Evidence from Mutual Fund Equity Allocations Worldwide," Journal of Finance, American Finance Association, vol. 60(3), pages 1495-1534, 06.
  7. Andrew B. Bernard & Fredrik Sjoholm, 2003. "Foreign Owners and Plant Survival," NBER Working Papers 10039, National Bureau of Economic Research, Inc.
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Cited by:
  1. Verena Dill & Uwe Jirjahn, 2014. "Foreign Owners and Perceived Job Insecurity in Germany: Evidence from Linked Employer-Employee Data," Research Papers in Economics 2014-09, University of Trier, Department of Economics.

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