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Whole vs. 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, 2009. "Whole vs. shared ownership of foreign affiliates," International Journal of Industrial Organization, Elsevier, vol. 27(5), pages 572-581, September.
  • Handle: RePEc:eee:indorg:v:27:y:2009:i:5:p:572-581
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    Citations

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    Cited by:

    1. Onur A. Koska, 2016. "A Consumer-Surplus Standard in Merger Approvals, Foreign Direct Investment, and Welfare," ERC Working Papers 1612, ERC - Economic Research Center, Middle East Technical University, revised Oct 2016.
    2. Onur A. Koska & Frank Stähler, 2014. "Optimal Acquisition Strategies in Unknown Territories," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 170(3), pages 406-426, September.
    3. repec:bla:worlde:v:40:y:2017:i:12:p:2543-2563 is not listed on IDEAS
    4. Horst Raff & Joachim Wagner, 2014. "Foreign Ownership and the Extensive Margins of Exports: Evidence for Manufacturing Enterprises in Germany," The World Economy, Wiley Blackwell, vol. 37(5), pages 579-591, May.
    5. Peter Nunnenkamp & Maximiliano Sosa Andrés, 2014. "Ownership Choices of Indian Direct Investors: Do FDI Determinants Differ between Joint Ventures and Wholly Owned Subsidiaries?," South Asian Journal of Macroeconomics and Public Finance, , vol. 3(1), pages 39-78, June.
    6. Gattai, Valeria & Natale, Piergiovanna, 2013. "What makes a joint venture: Micro-evidence from Sino-Italian contracts," Review of Financial Economics, Elsevier, pages 194-205.
    7. Dominik Boddin & Horst Raff & Natalia Trofimenko, 2017. "Foreign ownership and the export and import propensities of developing-country firms," The World Economy, Wiley Blackwell, vol. 40(12), pages 2543-2563, December.
    8. Lee, Joonhyung, 2014. "The transfer of workers within multinationals and ownership of foreign affiliates," Economics Letters, Elsevier, vol. 125(2), pages 149-152.

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