Corporate governance and foreign direct investment inflows: cross-sectional international evidence

Omar Al Farooque and Subba Reddy Yarram

American Journal of Finance and Accounting, 2010, vol. 2, issue 1, 1-15

Abstract: This study examines the interrelationships between foreign direct investment (FDI) inflows and country-level corporate governance in a large sample of countries for 2004. Building on the new paradigm shift of FDI attractiveness towards a host country's existing corporate governance environment, accounting/disclosure standards, property rights, openness of markets and legal/institutional infrastructure, this study provides new evidence of a significant positive bi-directional relationship between corporate governance and FDI. However, there is no significant effect of adoption of international accounting standards and legal origin on improving corporate governance and FDI inflows in the recipient country. But disclosure has significant positive impact on FDI inflows. While ownership diffusion has a significant positive effect on corporate governance, it shows a negative influence on FDI inflows. These evidences provide policy makers an insight to frame county-level strategy and implement appropriate measures in attracting FDI and improving quality of country-level corporate governance in an internationally competitive environment.

Keywords: corporate governance; FDI; foreign direct investment; bidirectional causal relationship; simultaneous equations; international accounting standards; disclosure; ownership diffusion. (search for similar items in EconPapers)
Date: 2010
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