Abstract
This research work is focused on effect of business group affiliation on firm with different shades of FDI capital such as technology, capital and competitiveness defined on the basis of FDI policy tools designed by Indian policy makers. The analysis reveals negative effect of business group affiliation on excess value created by firm using competitiveness shaded FDI capital. This empirical evidence supports that tunneling effect of business group affiliation is highly significant in a firm with competitiveness shaded FDI capital. Once, profitability, asset utilization and growth opportunity is controlled, the tunneling effect of business group affiliation becomes highly significant in firm irrespective of the shades of FDI capital. This is in support of study reported by Bertrand et al. (2002) claiming that tunneling effect is part of non-operating profit. There is strong evidence that FDI investors’ fund is expropriated by domestic business group when host economy has sufficient capital and technology and foreign investor is intending to create excess value on account of their higher efficiency.
Highlights
IntroductionEarlier foreign direct investment (FDI) has been considered as the most effective way of exploitation of host economy (according to dependency school) now-a-day, this is perceived as changing agent for growth of host economy
Earlier foreign direct investment (FDI) has been considered as the most effective way of exploitation of host economy now-a-day, this is perceived as changing agent for growth of host economy
The ANOVA test21 performed on pooled data reveals that the difference in excess value created by business group affiliated firm (BG firm) and stand-alone firm (NBG firm) is statistically significant (5% significant level) if it is measured in terms of asset multiples
Summary
Earlier foreign direct investment (FDI) has been considered as the most effective way of exploitation of host economy (according to dependency school) now-a-day, this is perceived as changing agent for growth of host economy. Such mechanisms are developed with underlying policy that performance of industry gets improved by infusing specific scarce resources in industry deficient of the same In this mechanism, the scarce resources required for growth of a specific industry has been considered as basis for designing policy instruments and FDI capital is regulated in the host economy. The scarce resources required for growth of a specific industry has been considered as basis for designing policy instruments and FDI capital is regulated in the host economy These policy instruments have been used for classification of FDI capital. Security shaded FDI capital has not been considered in this study due to unavailability of data This classification is further supported by policy documents of host economy government, which is used for designing policy tools. Three shades of FDI capital are considered as technology, capital and competitiveness
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