Abstract
What is the role of the information environment in foreign investment? Do foreign multinationals gain from host-country transparency regulation? This paper explores the informational aspects of liability of foreignness, taking advantage of a natural experiment in the petroleum industry. Canadian securities regulations since 2004 mandate that oil and gas companies include the estimated size and value of underground reserves in their financial reporting. Using gas and oil field acquisition data, the paper examines whether this change affects the asset valuations of reserve acquirers, and whether the valuation effect is different between foreign and domestic firms. Analysis of 2299 oil reserve deals finds that greater transparency has a positive effect on valuation, and the effect is stronger for domestic investment than for FDI, suggesting that domestic firms gained in competition with foreign MNCs for supply sources. The paper draws on economic theories of adverse selection and knowledge perspectives on economic geography to explain its findings.
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