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Whole versus Shared Ownership of Foreign Affiliates

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Author Info
Stähler, Frank
Ryan, Michael
Raff, Horst

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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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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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Web page: http://www.wiso.uni-kiel.de/econ/

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

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Find related papers by JEL classification:
L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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