Foreign direct investment and downside risk: Evidence from Taiwan

Li-Hsun Wang, Chu-Hsiung Lin, Hung-Gay Fung and Tzu-Chuan Kao

Pacific-Basin Finance Journal, 2019, vol. 57, issue C

Abstract: Foreign direct investment (FDI) has become highly popular in recent decades. This study investigates how FDI by Taiwanese firms affects downside risk by considering the fact that FDI firms increase both the revenue and risk in their expedition. The results indicate that downside risk is positively associated with FDI. Further analyses show that downside risks do not change for FDI in Mainland China but increases in other areas. The FDIs in areas other than Mainland China are primarily in tax haven countries and are positively related to agency cost and earnings management, increasing the downside risk. In addition, this study provides evidence that corporate governance reduces downside risk by restricting FDI to less opaque markets.

Keywords: Downside Risk; FDI; Agency cost; Earnings Management (search for similar items in EconPapers)
JEL-codes: F21 G32 G34 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:57:y:2019:i:c:s0927538x18302518

DOI: 10.1016/j.pacfin.2019.01.010

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