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Whole versus Shared Ownership of Foreign Affiliates

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

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.

Suggested Citation

  • Raff, Horst & Ryan, Michael & Stähler, Frank, 2008. "Whole versus Shared Ownership of Foreign Affiliates," Kiel Working Papers 1433, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:1433
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    Cited by:

    1. Görg, Holger & Lauber, Verena & Meyer, Birgit & Nunnenkamp, Peter, 2008. "Firm heterogeneity and choice of ownership structure: an empirical analysis of German FDI in India," Kiel Working Papers 1462, Kiel Institute for the World Economy (IfW Kiel).
    2. Cieslik, Andrzej & Ryan, Michael, 2009. "Firm heterogeneity, foreign market entry mode and ownership choice," Japan and the World Economy, Elsevier, vol. 21(3), pages 213-218, August.

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    More about this item

    Keywords

    Foreign direct investment; multinational enterprise; joint venture; productivity;
    All these keywords.

    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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