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Corporate Governance and Foreign Direct Investment

Author

Listed:
  • D. Alba, Joseph

    (Nanyang Technological University)

  • Park, Donghyun

    (Asian Development Bank)

  • Wang, Peiming

    (Auckland University of Technology)

Abstract

Merger and acquisition (M&A) activity is motivated by increasing shareholder value through improved corporate governance. Therefore, stronger corporate governance can reduce the returns from M&A activity, including M&A foreign direct investment (FDI). This, in turn, can reduce the returns from non-M&A FDI in light of the complementary relationship between M&A and non-M&A FDI. We use firm-level evidence to empirically examine the effect of corporate governance in the United States (US) on Japanese M&A and non-M&A FDI inflows. In doing so, we expand upon Alba, Park, and Wang (2009), which looked only at the M&A FDI inflows. We find that two landmark US corporate governance regulations help explain the sharp drop in both Japanese M&A and non-M&A FDI into the US during the 1990s. The regulations apparently encouraged US firms to improve their corporate governance. Our evidence thus suggests that corporate governance may affect both M&A and non-M&A FDI.

Suggested Citation

  • D. Alba, Joseph & Park, Donghyun & Wang, Peiming, 2010. "Corporate Governance and Foreign Direct Investment," ADB Economics Working Paper Series 202, Asian Development Bank.
  • Handle: RePEc:ris:adbewp:0202
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    References listed on IDEAS

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    More about this item

    Keywords

    Corporate governance; FDI; merger and acquisition;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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