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Multinational Ownership and Subsidiary Investment

  • Wendy Carlin
  • Andrew Charlton
  • Colin Mayer

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 Oxford Financial Research Centre in its series OFRC Working Papers Series with number 2008fe05.

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Length: 42
Date of creation: 2008
Date of revision:
Handle: RePEc:sbs:wpsefe:2008fe05
Contact details of provider: Web page: http://www.finance.ox.ac.uk
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