Sheltering Corporate Assets from Political Extraction

Caprio, L. De; Faccio, Mara; McConnell, John J.

doi:10.2139/ssrn.1090968

Cited by 50 publications

(61 citation statements)

References 47 publications

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“…The perils of expropriation risk on foreign direct investment (FDI) are well documented in the literature (Overholt, 1982;Eaton & Gersovitz, 1984;Caprio, Faccio, & McConnell, 2011). Recent survey data also shows that expropriation risk is the top concern for multinational corporations (MNCs) from both developed and developing countries alike, and far exceed other obstacles such as access to finance, rigid labor market regulations, and macroeconomic instability (World Bank, 2009, 42).…”

Section: Introductionmentioning

confidence: 99%

State-owned MNCs and host country expropriation risk: The role of home state soft power and economic gunboat diplomacy

2014

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Expropriation risk has a binding effect on foreign direct investment (FDI). However, state-owned multinational corporation (MNCs) may counter the monopoly power of the host state by leveraging the political influence of their home government. The magnitude of this counter force, we argue, may vary, depending on the strength of political relations between the home and host state, and the level of economic dependence of the host country on the home market. We find supporting evidence of our hypotheses using Chinese firm level FDI information between 2003 and 2010.

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Section: Introductionmentioning

confidence: 99%

State-owned MNCs and host country expropriation risk: The role of home state soft power and economic gunboat diplomacy

2014

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“…For example, some analysts explore the relationship between regime type and FDI flows (Jensen 2003;Li and Resnick 2003;Oneal 1994). Others have focused on partisanship (Pinto 2013;Pinto and Pinto 2008), the contractual environment and transaction costs (Henisz 2000;Henisz and Williamson 1999), or corruption (Caprio, Faccio, and McConnell 2013;Fredriksson, List, and Millimet 2003).…”

Section: Political Variables Should Be Strong Predictors Of Investmenmentioning

confidence: 99%

The political determinants of foreign direct investment: a firm-level analysis

Arel‐Bundock¹

2018

Preprint

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Many large-N cross-national studies claim to show that political institutions and phenomena determine where foreign direct investment (FDI) flows. In this paper, I argue that these studies tend to overemphasize statistical significance, and often neglect to assess the explanatory or predictive power of their theories. To illustrate the problem, I estimate variations of a statistical model published in an influential article on Political Risk, Institutions, and FDI. I find that none of the political variables that the authors consider account for much of the variation in aggregate FDI inflows. To ensure that this underwhelming result is not driven by misspecification or measurement error, I leverage a large firm-level dataset on the investment location decisions of thousands of multinational firms. Using non-parametric machine-learning techniques and out-of-sample tests, I show that gravity variables can help us develop very accurate expectations about firm behavior, but that none of the 31 "political determinants" of FDI that I consider can do much to improve our priors.These findings have important implications, because they suggest that governments retain some room to move in the face of economic globalization.⁰vincent.arel-bundock@umontreal.ca. I thank William R. Clark, Robert J. Franzese Jr., Andrew Kerner, Walter R. Mebane Jr., Philip B.K. Potter, several anonymous reviewers, and the Editors of II.

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“…Third, they realized that firms which are located in the individualist states of United States of America hold less cash in comparison to non-individualist states of that same country. Caprio et al (2013) identified other cash holding expenses, among which are these: cash is an asset which can be easily abused and which is accessible easily by the top members of corporations; corporations which are located in the countries with high level of corruption tend to hold less cash, and they invest most of their cash in fixed assets in corporations that are located in countries with low level of corruption. Drobertz et al (2010) who investigated those factors affecting the corporations' cash balance, proved that both the corporations' tangible assets and the corporations' size have negative relationships with cash balance and also, there is a nonlinear relationship between leverage ratio and cash holding.…”

Section: Literature Reviewmentioning

confidence: 99%