Corporate Governance and Foreign Direct Investment

21 Pages Posted: 4 Jul 2010

See all articles by Joseph D. Alba

Joseph D. Alba

Nanyang Technological University

Donghyun Park

Asian Development Bank - Economic Research

Peiming Wang

Auckland University of Technology - Department of Finance

Date Written: May 1, 2010

Abstract

Merger and acquisition (M&A) activity is motivated by increasing shareholder value through improved corporate governance. Therefore, stronger corporate governance can reduce the returns from M&A activity, including M&A foreign direct investment (FDI). This, in turn, can reduce the returns from non-M&A FDI in light of the complementary relationship between M&A and non-M&A FDI. We use firm-level evidence to empirically examine the effect of corporate governance in the United States (US) on Japanese M&A and non-M&A FDI inflows. In doing so, we expand upon Alba, Park, and Wang (2009), which looked only at the M&A FDI inflows. We find that two landmark US corporate governance regulations help explain the sharp drop in both Japanese M&A and non-M&A FDI into the US during the 1990s. The regulations apparently encouraged US firms to improve their corporate governance. Our evidence thus suggests that corporate governance may affect both M&A and non-M&A FDI.

Keywords: Corporate governance, FDI, merger and acquisition

JEL Classification: G30, G34, F21, F23

Suggested Citation

Alba, Joseph Dennis A. and Park, Donghyun and Wang, Peiming, Corporate Governance and Foreign Direct Investment (May 1, 2010). Asian Development Bank Economics Working Paper Series No. 202, Available at SSRN: https://ssrn.com/abstract=1633702 or http://dx.doi.org/10.2139/ssrn.1633702

Joseph Dennis A. Alba (Contact Author)

Nanyang Technological University ( email )

School of Social Sciences
48 Nanyang Avenue
Singapore, 639818
Singapore

Donghyun Park

Asian Development Bank - Economic Research ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Peiming Wang

Auckland University of Technology - Department of Finance ( email )

AUT City Campus
Private Bag 92006
Auckland, 1142
New Zealand

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