Level Of Foreign Ownership Research Articles

Are Foreign-Owned Firms More Likely to Pay Bribes than Domestic Ones? Evidence from Emerging Markets

Summary An extensive literature exists on the adverse effects of corruption on inward FDI and the impact this may have on economic development but the reverse causality has not been fully explored. Legislation in the US and the EU prohibits firms from engaging in corrupt practices in foreign countries and this suggests that foreign-owned firms might be less likely to pay bribes. However, such legislation may be ineffective because foreign firms have to adapt to local market conditions or risk being uncompetitive. Using firm-level data for 41 emerging countries, a probit model estimates the probability that a firm pays bribes. To allow for possible endogeneity this probit analysis is repeated with an instrument to proxy for endogenous foreign ownership. Then, a propensity score matching technique tests for differences in the propensity to pay bribes by domestic and foreign firms. The paper finds no difference in the behavior of foreign-owned and domestic firms with respect to corrupt practices. Results are robust to different levels of foreign ownership and support the view that foreign-owned firms adapt to local practices and are neither more nor less likely to pay bribes than comparable domestic firms. The paper finds that other variables including bureaucracy, government contracts, and perceived difficulties with civil society (legal and political) do have statistically significant effects on increasing bribery and that some others, such as per capita GDP, tend to reduce bribery. The study concludes that there is no evidence that foreign ownership, after investment has occurred, tends to reduce bribery but it does support the view that foreign-owned firms adopt local behavioral norms.

Absorptive Capacity and International HRM from an Emerging-market Economy Perspective

This study extends an existing theoretical framework for absorptive capacity to an Asian emerging market economy context through an empirical investigation of knowledge transfer in a cross-section of automotive manufacturers (cars, motorcycles and autoparts). The results of two phases of qualitative data collection in Japan and Indonesia reveal that intensity of foreign ownership and involvement positively affects subsidiaries’ absorptive capacity and HRM practices. These in turn have varying effects on the transformation and exploitation of Japanese systems of work in Indonesian subsidiaries. Inter-human relationships foster Japanese knowledge transfer by promoting inter- and intra- organizational knowledge inflows and an important characteristic of absorptive capacity. The level of foreign ownership and involvement and the length of foreign management presence also impact on both employees’ abilities and motivation, and the use of organizational tools.

The role of board gender and foreign ownership in the CSR performance of Chinese listed firms

China's recent promotion of Corporate Social Responsibility (CSR) has coincided with a marked increase in the number of Chinese listed firms attracting female board members and foreign equity investors. Using Rankins' (RKS) ratings over the 2009 to 2013 period, we show that greater gender balance in top-management supports stronger CSR performance. This finding broadens gender-based accounts emphasizing social networks (Westphal and Milton, 2000), Critical Mass Theory (Kramer et al., 2006; Bear et al., 2010; and Soares et al., 2011) and team dynamics (Woolley et al., 2010; and Hoogendoorn et al., 2013). Findings also reveal stronger CSR performance in firms where a female officer is present at the CEO and/or vice-CEO level. Female leadership thus appears to be just as important as gender mix in driving CSR change. Our findings shed new light and add further dimension to the nascent literature on gender and CSR-engagement in China (Lau et al., 2016; and Liao et al., 2016).We examine whether a political-networking motivation underlies foreign investment (Du and Girma, 2010; Liu et al., 2014a; Lin et al., 2015; and Jiang and Kim, 2015). We argue that qualified foreign institutional investors (QFIIs) deploy social-engagement in non-SOEs to build competitive advantage. But in SOEs, where strong political networks already exist, QFIIs have less incentive to boost CSR ratings. Results indicate little difference in the social ratings of QFII-invested SOEs and non-SOEs. However, CSR scores are increasing in foreign ownership levels in SOEs. By considering offshore ownership, we broaden understanding of how foreign channels influence CSR in China (Tsoi, 2010; Cheung et al., 2014a; and Lau et al., 2016).Additionally, we confirm the Barnea and Rubin (2010) contention of an inversion in social ratings at entrenched managerial ownership levels. Non-linear rating effects also emerge in relation to state ownership (Li et al., 2013). Finally, CSR performance exhibits positive (negative) relation with a listed entity's size and age (leverage and lagged return-on-equity) but virtually no connection with independent board representation.

Ownership structure and analysts’ forecast properties: a study of Chinese listed firms

PurposeThe purpose of this paper is to investigate the association between ownership structure and the properties of analysts’ forecasts in China’s unique corporate setting.Design/methodology/approachMultiple regression models were used to examine the influence of ownership structure mechanisms on analysts’ forecast properties for listed Chinese firms during the period 2008-2012.FindingsThe paper finds that analysts’ forecast accuracy is higher for listed firms with high levels of foreign ownership and managerial ownership. However, the complex pyramidal ownership structure could make corporate information less transparent and then increase the complexity of forecasting; hence, it results in less precise analysts’ forecasts. Interestingly, the relationship between state ownership and analysts’ forecast properties appears to be non-linear (an inverted U-shape), and the inflection point at which the relationship becomes negative occurs at state ownership over 45 per cent.Originality/valueTo the best of the author’s knowledge, this paper is the first to investigate the influence of ownership structure mechanisms on the properties of analysts’ forecasts in an emerging market, and the findings provide some insight on how the properties of analysts’ forecast might be shaped by certain ownership and control features in the context of concentrated state ownership and complex pyramidal ownership structure.

Foreign ownership and stock market liquidity - evidence from Vietnam

This paper investigates the relationship between level of foreign ownership in a firm and the liquidity of the firm stock in the Vietnam stock markets. We employ a rich and detailed dataset representing foreign portfolio investment, liquidity and other firm attributes in the Vietnamese context. Our dataset ranges from 2006 to 2012 covering most of non-financial firms listed on Ho Chi Minh City stock exchange. Using a wide number of econometric techniques for panel data analysis, the results from our analysis indicate that increased foreign investment in firms is not associated with higher liquidity. The results also confirm the long term buy and hold strategy of foreign investors in Vietnam stock market.

Foreign Ownership and Corporate Performance in Turkey

This study examines the relationship between the degree of foreign ownership and performance of recipient firms and test whether different levels of foreign ownership have different effects on corporate performance, using a balanced panel of 270 Turkish firms over the period of 2008-2012. It is found that there is a positive and statistically significant relationship between foreign ownership and corporate performance. However, there does not exist a significant difference among firms with different degrees of freedom in terms of corporate performance, except for the major foreign capital and wholly foreign capital firms in profitability.

Foreign ownership in emerging stock markets

We use several firm characteristics to establish the extent that information asymmetry impacts the level of foreign ownership in Vietnam. The findings indicate that foreign investors adopt a long term investment horizon and employ a buy and hold strategy to exploit potential growth prospects. These investors also avoid firms with riskier financial management practices and where information asymmetries provide advantages to domestic investors. Overall, these findings support the importance of linking deregulation with financial market openness and transparency to enhance and encourage international portfolio investment.

The impact of minority foreign ownership and controlling shareholder on bank risk and performance

Purpose – The purpose of this paper is to examine the impact of minority foreign ownership on the risk taking behavior and performance of domestic banks in a country where foreign ownership restrictions are imposed. Design/methodology/approach – Mainly controlled by family business groups, the authors examine the extent by which the presence and the level of foreign ownership and voting rights affect domestic bank behavior. Findings – The results show that compared with those purely domestic-owned, banks with foreign shareholdings have lower levels of insider lending and have higher loan portfolio quality. Moreover, the authors find an increase in foreign voting rights effective in raising risk-adjusted returns and in lowering default risk. This positive effect on performance, however, ceases at higher levels of control manifested by the majority domestic shareholder. Research limitations/implications – Overall, this study shows that there are significant benefits derived from minority foreign shareholder presence in Philippine domestic banks. Originality/value – This paper contributes to the debate of whether it may be beneficial to reduce or completely lift the foreign ownership restrictions imposed on the banks in the country.

Investment liberalisation, technology take-off and export markets entry: Does foreign ownership structure matter?

Before and after its accession to the WTO in 2001, China has undergone a far-reaching investment liberalisation. As part of this, existing restrictions on foreign ownership structure and mandatory export and technology transfer requirements imposed on foreign firms have been lifted in a number of industries. Against this background we identify the causal effects of foreign acquisitions on export market entry and technology take-off and evaluate whether the level of foreign ownership plays a role in stimulating these changes. Using doubly robust propensity score reweighted bivariate probit regressions to control for the selection bias associated with firm level foreign acquisition incidences, we uncover strong but heterogeneous positive effects on export activity for all types of foreign ownership structure. We also find that minority foreign owned acquisition targets experience higher likelihood of R&D, providing evidence that joint ventures can contribute positively to China's “science and technology take-off”.

Corporate governance, organisational power and disclosure by firms in the United Arab Emirates

This study examines the association between corporate governance mechanisms and corporate disclosure in the United Arab Emirates (UAE). Hypotheses based on agency theory and organisational power literature are developed and tested on 85 firms listed in Dubai and Abu Dhabi stock exchanges. The study also runs multiple regression tests on two sub-samples (46 financial firms and 39 non-financial firms) in order to provide a richer analysis for the empirical findings. Overall, the results show that the extent of firms' disclosure is positively associated with the number of board committees, debt finance, firm size and firm profitability, while it is negatively related to CEO power. This study's findings direct policymakers attention to the importance of: the composition of the board, the optimal size of the board, governing the type of knowledge required for board members, and revisiting the level of foreign ownership in UAE firms.

Corporate governance and forward-looking disclosure: Evidence from China

This paper investigates the association between a range of corporate governance mechanisms and forward-looking disclosure (FLD) in a low information environment: the Chinese stock markets. It finds that the implementation of certain monitoring and control mechanisms, such as financial expertise on audit committees and independent directors on the board of directors, can improve the extent of FLD. However, the size of the supervisory board and separating the roles of the CEO and the chairman of the board of directors is of little help in explaining any improvement in FLD. In contrast, ownership structure appears to play an essential role in determining FLD policies. Indeed, listed firms with high levels of foreign ownership and fewer pyramidal layers in their ownership structure tend to disclose more forward-looking information. Of particular interest, the association between state ownership and FLD is likely to be non-linear (an inverted U-shape), and the inflection point at which the association becomes negative occurs at a state ownership over 33 percent. In summary, this study provides new evidence on the impact of corporate governance mechanisms on FLD in China's unique institutional environment.

Investment Liberalisation, Technology Take-Off and Export Market Entry: Does Foreign Ownership Structure Matter?

Before and after its accession to the WTO in 2001, China has undergone a far-reaching investment liberalisation. As part of this, existing restrictions on foreign ownership structure and mandatory export and technology transfer requirements imposed on foreign firms have been lifted in a number of industries. Against this background we identify the causal effects of foreign acquisitions on export market entry and technology take-off and evaluate whether the level of foreign ownership plays a role in stimulating these changes. Using doubly robust propensity score reweighted bivariate probit regressions to control for the selection bias associated with firm level foreign acquisition incidences, we uncover strong but heterogeneous positive effects on export activity for all types of foreign ownership structure. We also find that minority foreign owned acquisition targets experience higher likelihood of R&D, providing evidence that joint ventures can contribute positively to China's science and technology take-off.

Foreign Ownership and Firm Performance - Evidence in Vietnam

The paper aims to investigate the relationship between foreign ownership and firm performance in Vietnam. We use a data set including market and accounting variables of firms listed on Ho Chi Minh Stock Exchange (HOSE) for the period from 2007 to 2012. The results show a significant correlation between foreign ownership and firm performance. The regressions on each level of foreign ownership indicate that foreign ownership is found to be significantly and positively correlated with firm performance when foreigners own between 5% and 20% of shares in firms, while a negative correlation occurs where foreign holdings are more than 20%, specially and considerably negative where the level is more than 40%; and there is no significant relationship between the two variables where foreigners own less than 5% of shares.

The Dark and the Bright Side of Global Banking: A (Somewhat) Cautionary Tale from Emerging Europe

What are the costs and benefits of cross-border banking integration and how has the balance between the two shifted in the aftermath of the global financial crisis? This question is not only of academic interest but also pertinent to policy discussions in the wide range of countries that have opened up their banking sectors to foreign investors over the past three decades. The process of financial globalisation during this period has resulted in high levels of foreign ownership of banks across the world. To name but a few examples, Spanish and Portuguese banks developed a presence in Latin America on the back of the strong cultural and trade links between this region and the Iberian Peninsula. Nigerian and South African Open image in new window Figure 2.1 Global banking across the globe Note: Foreign bank assets as a percentage of total banking assets. Source: Claessens and Van Horen (2014) and EBRD (2009). banks created pan-African networks, while many of New Zealand’s banking assets are currently owned by Australian financial institutions.

An Examination of the Antecedents of TMT Global Diversity in USA Firms

Researchers have found that if managed properly, TMT global diversity can have positive effects such as stronger performance, yet little attention has been paid to what factors encourage or discourage TMT global diversity. In this paper, we develop a theoretical model to address this question and it includes six main antecedents to TMT global diversity: the degree of the firm international diversification, the firm’s past performance, the international experience of the CEO, the global diversity of Board of Directors, foreign ownership levels, and executive compensation. Understanding the antecedents of TMT global diversity should help shed light on what levers might be used to improve global diversity in situations where global diversity might lead to stronger effects on the firm.A proposal version of this paper was presented in the 2013 Annual Meeting of the Strategic Management Society in Atlanta, Georgia. The current version is a work in progress and has been expanded using the feedback from conference attendees and reviewers.

Banking union under construction: The impact of foreign ownership and domestic bank internationalization on European Union member-states’ regulatory preferences in banking supervision

ABSTRACTWhat is the optimal scope of regulatory harmonization in European financial sector governance? I argue that the levels of foreign ownership and domestic bank internationalization are important determinants of the extent to which governments are prepared to endorse European solutions in banking supervision or prefer national ones. I test two hypotheses about the impact of foreign ownership and domestic bank internationalization on regulatory preferences. This article shows that being a host jurisdiction to foreign financial institutions constrains states’ ability to steer credit flows and tackle perceived threats to national financial stability. As a consequence, decision-makers seek to preserve some national regulatory autonomy. Especially during economic downturns, national supervisory authorities have strong incentives to pursue policies that minimize losses for domestic stakeholders and shift burdens onto foreign ones.

Foreign Direct Investment and Wages: Does the Level of Ownership Matter?

This study hypothesises that the level of foreign equity participation is a key determinant of the multinational wage premium. In particular, the breakdown of equity in a foreign investment project determines the extent to which a multinational parent company transfers proprietary assets to its affiliate, directly impacting worker productivity. Moreover, it indicates multinationals’ desire to restrict labour turnover and preserve human capital in light of organisational changes and training. Using detailed plant-level data from Turkey, the study finds strong support for these mechanisms. The results show that up to 15 percentage points of the multinational wage premium can be explained by the level of foreign ownership per se. They also indicate that greater foreign equity participation leads to greater transfer of both tangible and intangible assets and thus higher wage premia, especially for skilled workers. This relationship is better approximated as linear rather than binary in contrast to previous literature.

Bad Banks as a Response to Crises: When Do Governments Use Them, and Why Does Their Governance Differ?

Early working draft prepared for the 2013 International Political Economy Seminar. Comments welcome. 1 Many countries have used public asset management companies (AMCs, or “bad banks”) as part of strategies to restore their banking systems after crises. This includes the United States in the late 1980s, countries in East Asia and Latin America in the 1990s, and countries in Europe and Africa more recently. AMC structures, however, vary widely. Using a newly created global dataset of public bad banks, we begin to explore how domestic political institutions, international institutions, and international capital may be behind policymakers’ (a) decisions to create AMCs in response to crises as well as (b) design choices, particularly in terms of AMCs’ level of centralisation. We find evidence that countries with low levels of foreign ownership of the banking system and many highly polarised veto players are more likely to create AMCs. IMF conditionality is also associated with the creation of AMCs. We furthermore find evidence for a more nuanced relationship between democracy and AMC creation than what has been discussed in previous research. Our evidence suggests that countries with high levels of democracy, rather than being less likely to create AMCs at all are actually more likely to create decentralised AMCs.

The impact of foreign investors on the risk-taking of Japanese firms

Consistent with a bank-centered governance system, Japanese firms exhibit an exceptionally low level of performance variability. The increased involvement of foreign investors motivated by shareholder value is thus likely to have triggered a major shift in their risk-taking behavior. My results confirm this assumption as all standard measures of performance volatility appear to have significantly increased with the level of foreign ownership. Controlling for endogeneity provides higher point estimates supporting anecdotal evidence that foreign investors have targeted firms taking unusually low risk. Overall, the evidence highlights the considerable impact that this category of investors can have on a firm’s decisions and, by consequence, on its performance.

How Important are Foreign Ownership Linkages for International Stock Returns?

A large previous literature has examined the relative importance of country and industry effects for international stock returns. We find that there is a third important driver, ownership. We develop a simple measure of international ownership linkages and show that ownership linkages are of similar importance to the traditional country and industry effects. International ownership linkages are not explained by the local or world market, country of capital origin, liquidity, investment style, foreign operations, the level of foreign ownership, or fund flows. We find evidence of the effect being driven by investor habitat and portfolio rebalancing. The specific ownership composition of a stock is an important facet of international equity returns--a finding which has important practical diversification implications.