Multinational Ownership and Subsidiary Investment

Wendy Carlin (), Andrew Charlton and Colin Mayer ()

OFRC Working Papers Series from Oxford Financial Research Centre

Abstract: This paper examines how foreign ownership affects the investment decisions of subsidiary firms using a new dataset of listed-parent − listed-subsidiary pairs. We find that improvements in the investment opportunities of parent firms have a negative effect on the investment of their subsidiaries, after controlling for the investment opportunities of the subsidiary, which can be independently observed. This provides evidence of internal capital markets in multinationals that reallocate funds towards units with better investment opportunities. We also find that the negative effect of the parent’s investment opportunities on subsidiary investment is greatest where the relationship is more arms-length, i.e. where parents have modest ownership stakes, are distant from their subsidiaries or when subsidiaries – as well as parents – operate in well developed financial markets.

Keywords: Investment; Internal Capital Markets; Foreign Ownership (search for similar items in EconPapers)
JEL-codes: F21 G31 (search for similar items in EconPapers)
Pages: 42
Date: 2008
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (4)

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Working Paper: Multinational Ownership and Subsidiary Investment (2008)
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