Internal Capital Markets

Very preliminary and incomplete Is the investment behaviour of foreign owned firms different from that of domestic? In particular, do they respond differently to weak financial markets and recessions from domestic firms? This paper examines the impact of foreign ownership on investment in the context of a new data set that allows the activities of subsidiaries to be separately identified from that of parents. It finds that there is superior resource allocation associated with foreign ownership. There is evidence that this is associated with improved information in particular in the context of weak domestic financial markets and poor economic conditions in subsidiary countries. The benefits of foreign ownership are particularly pronounced when parents have modest ownership stakes and they are geographically distant from their subsidiary, so limiting their potential adverse influence costs on their subsidiaries ’ investment.