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Whole versus Shared Ownership of Foreign Affiliates

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  • Stähler, Frank
  • Ryan, Michael
  • Raff, Horst

Abstract

This paper studies why multinational firms often share ownership of a foreign affiliate with a local partner even in the absence of government restrictions on ownership. We show that shared ownership may arise, if (i) the partner owns assets that are potentially important for the investment project, and (ii) the value of these assets is private information. In this context shared ownership acts as a screening device. Our model predicts that the multinational?s ownership share is increasing in its productivity, with the most productive multinationals choosing not to rely on a foreign partner at all. This prediction is shown to be consistent with data on the ownership choices of Japanese multinationals. --

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Bibliographic Info

Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2007,18.

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Date of creation: 2007
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Handle: RePEc:zbw:cauewp:5684

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Keywords: Foreign direct investment; ownership; joint venture; productivity;

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References

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Citations

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Cited by:
  1. Shafik Hebous & Alfons Weichenrieder, 2010. "Debt financing and sharp currency depreciations: wholly versus partially-owned multinational affiliates," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 146(2), pages 281-302, June.
  2. Görg, Holger & Mühlen, Henning & Nunnenkamp, Peter, 2010. "FDI liberalization, firm heterogeneity and foreign ownership: German firm decisions in reforming India," Proceedings of the German Development Economics Conference, Hannover 2010 35, Verein für Socialpolitik, Research Committee Development Economics.
  3. Holger Görg & Henning Mühlen & Peter Nunnenkamp, 2009. "Firm Heterogeneity, Industry Characteristics and Types of FDI: The Case of German FDI in the Czech Republic," Kiel Working Papers 1544, Kiel Institute for the World Economy.
  4. Wang, Chengqi & Hong, Junjie & Kafouros, Mario & Boateng, Agyenim, 2012. "What drives outward FDI of Chinese firms? Testing the explanatory power of three theoretical frameworks," International Business Review, Elsevier, Elsevier, vol. 21(3), pages 425-438.
  5. Frank Stähler, 2014. "Partial ownership and cross-border mergers," Journal of Economics, Springer, Springer, vol. 111(3), pages 209-237, April.
  6. Cieslik, Andrzej & Ryan, Michael, 2009. "Firm heterogeneity, foreign market entry mode and ownership choice," Japan and the World Economy, Elsevier, Elsevier, vol. 21(3), pages 213-218, August.

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