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What Makes Firms in Emerging Markets Attractive to Foreign Investors? Micro-evidence from the Czech Republic

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  • Peter Toth
  • Petr Zemcik

Abstract

We use a panel of Czech firms to enhance existing literature where the dependent variable is foreign ownership. In our estimation, we control for endogeneity and unobserved effects using standard methods complemented by tests for heterogenous Granger-causality. We also model foreign ownership as a response variable in a hazard model and consider sorting by foreign owners rather then by domestic firms. We find that foreigners target firms with a greater ownership concentration in industries’s with higher level of risk, in countries with lower labor costs and corporate income taxes.

Suggested Citation

  • Peter Toth & Petr Zemcik, 2006. "What Makes Firms in Emerging Markets Attractive to Foreign Investors? Micro-evidence from the Czech Republic," CERGE-EI Working Papers wp294, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
  • Handle: RePEc:cer:papers:wp294
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    File URL: http://www.cerge-ei.cz/pdf/wp/Wp294.pdf
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    References listed on IDEAS

    as
    1. Lin, Chihuang H. & Shiu, Cheng-Yi, 2003. "Foreign ownership in the Taiwan stock market--an empirical analysis," Journal of Multinational Financial Management, Elsevier, vol. 13(1), pages 19-41, February.
    2. Anete Pajuste, 2002. "Corporate governance and stock market performance in Central and Eastern Europe: a study of nine countries, 1994-2001," UCL SSEES Economics and Business working paper series 22, UCL School of Slavonic and East European Studies (SSEES).
    3. Driffill, John & Sola, Martin, 1998. "Intrinsic bubbles and regime-switching," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 357-373, July.
    4. Hamilton, James D & Gang, Lin, 1996. "Stock Market Volatility and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(5), pages 573-593, Sept.-Oct.
    5. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    6. Makhija, Anil K & Spiro, Michael, 2000. "Ownership Structure as a Determinant of Firm Value: Evidence from Newly Privatized Czech Firms," The Financial Review, Eastern Finance Association, vol. 35(3), pages 1-31, August.
    7. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    8. Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 39-70.
    9. Cull, Robert & Matesova, Jana & Shirley, Mary, 2002. "Ownership and the Temptation to Loot: Evidence from Privatized Firms in the Czech Republic," Journal of Comparative Economics, Elsevier, vol. 30(1), pages 1-24, March.
    10. Simeon Djankov, 1999. "Ownership Structure and Enterprise Restructuring in Six Newly Independent States," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 41(1), pages 75-95, April.
    11. Anderson, Christopher W & Jandik, Tomas & Makhija, Anil K, 2001. "Determinants of Foreign Ownership in Newly Privatized Companies in Transition Economies," The Financial Review, Eastern Finance Association, vol. 36(2), pages 161-175, May.
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    Cited by:

    1. Alena Zemplinerova, 2010. "Competition policy and economic analysis: What can we learn from firm and industry data?," CERGE-EI Books, The Center for Economic Research and Graduate Education - Economics Institute, Prague, edition 1, number b07, November.

    More about this item

    Keywords

    foreign ownership; endogeneity; causality; fixed effects; hazard model; truncated sample;

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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