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 âˆ’ 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 parentâ€™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 â€“ as well as parents â€“ operate in well developed financial markets.
When requesting a correction, please mention this item's handle: RePEc:sbs:wpsefe:2008fe05. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maxine Collett)
If references are entirely missing, you can add them using this form.