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Multinational Ownership and Subsidiary Investment

  • Colin Mayer
  • Wendy Carlin

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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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 2008fe05.

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Date of creation: 01 Jan 2008
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Handle: RePEc:oxf:wpaper:2008fe05
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Web page: http://www.economics.ox.ac.uk/
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