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Shareholder protection, ownership concentration and FDI

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  • Lskavyan, Vahe
  • Spatareanu, Mariana

Abstract

Host country's weaker legal shareholder protection may make it costlier for parent shareholders to monitor the foreign subsidiary and hold managers accountable in case of misconduct. This prospect may motivate the managers to invest in such foreign environments. However, the agency costs associated with such investments can increase as well. The latter would tend to discourage such FDI. We test this ex ante uncertain relationship using a sample of publicly quoted UK parents that established new, majority owned joint venture subsidiaries in Continental Europe. We find that host country's weak legal shareholder protection discourages FDI. This negative relationship, however, is less important for firms with higher ownership concentration, implying that parent's ownership concentration may be a substitute for host country's weak legal shareholder protection.

Suggested Citation

  • Lskavyan, Vahe & Spatareanu, Mariana, 2011. "Shareholder protection, ownership concentration and FDI," Journal of Economics and Business, Elsevier, vol. 63(1), pages 69-85.
  • Handle: RePEc:eee:jebusi:v:63:y:2011:i:1:p:69-85
    DOI: 10.1016/j.jeconbus.2010.05.002
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    Cited by:

    1. repec:eee:riibaf:v:42:y:2017:i:c:p:950-958 is not listed on IDEAS
    2. Andriosopoulos, Dimitris & Yang, Shuai, 2015. "The impact of institutional investors on mergers and acquisitions in the United Kingdom," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 547-561.
    3. repec:eco:journ1:2017-02-80 is not listed on IDEAS
    4. Adongo, Jonathan O., 2017. "Legal jurisdiction, director liability law, and venture capitalists’ equity stakes in Africa," Research in International Business and Finance, Elsevier, vol. 40(C), pages 78-93.

    More about this item

    Keywords

    Shareholder protection; Ownership concentration; FDI;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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