Shareholder protection, ownership concentration and FDI

Vahe Lskavyan, Mariana Spatareanu

Research output: Contribution to journalArticlepeer-review

10 Scopus citations

Abstract

Host country's weaker legal shareholder protection may make it costlier for parent shareholders to monitor the foreign subsidiary and hold managers accountable in case of misconduct. This prospect may motivate the managers to invest in such foreign environments. However, the agency costs associated with such investments can increase as well. The latter would tend to discourage such FDI. We test this ex ante uncertain relationship using a sample of publicly quoted UK parents that established new, majority owned joint venture subsidiaries in Continental Europe. We find that host country's weak legal shareholder protection discourages FDI. This negative relationship, however, is less important for firms with higher ownership concentration, implying that parent's ownership concentration may be a substitute for host country's weak legal shareholder protection.

Original languageEnglish (US)
Pages (from-to)69-85
Number of pages17
JournalJournal of Economics and Business
Volume63
Issue number1
DOIs
StatePublished - Jan 1 2011

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Economics and Econometrics

Keywords

  • FDI
  • Ownership concentration
  • Shareholder protection

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