Multinational Ownership and Subsidiary Investment
This paper examines how foreign ownership affects the investment decisions of subsidiary firms using a new dataset of listed-parent - listed-subsidiary pairs.� We find that improvements in the investment opportunities of parent firms have a negative effect on the investment of their subsidiaries, after controlling for the investment opportunities of the subsidiary, which can be independently observed.� This provides evidence of internal capital markets in multinationals that reallocate funds towards units with better investment opportunities.� We also find that the negative effect of the parent's investment opportunities on subsidiary investment is greatest where the relationship is more arms-length, i.e. where parents have modest ownership stakes, are distant from their subsidiaries or when subsidiaries - as well as parents - operate in well developed financial markets.
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|Date of creation:||01 Jan 2008|
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