Bridging the gap? Corruption, knowledge and foreign ownership

We argue that in addition to host corruption per se, as accounted for by the existing literature, an explanation of inter-country variation in FDI needs to account for the distance between the host and home corruption, which we call relative corruption. We use a large matched home-host firm-level panel data-set for 1998-2006 from CEE transition countries. Year-specific selectivity corrected estimates suggest that, ceteris paribus, higher relative ‘grand’ corruption lowers foreign ownership as the returns to investment tends to be lower in more corrupt environment. However, after controlling for the selectivity bias, knowledge-intensive parent firms are found to hold controlling ownership, as the difficulty of successful joint venture looms large in more corrupt environment. Results are robust to alternative specifications.

China's economic co-operation related investment:an investigation of its direction and some implications for outward investment

Chinese firms undertake large scale contracted projects in a number of countries under the auspices of economic cooperation. While there are suggestions that these activities are an extension of China's soft power aimed at facilitating Chinese foreign direct investment (FDI) in those countries, often for access to natural resources, there is no systematic analysis of this in the literature. In this paper, we examine China's economic cooperation related investment (ECI) over time. Our results suggest that the pattern of investment is indeed explained well by factors that are used in the stylised literature to explain directional patterns of outward FDI. They also demonstrate that the (positive) relationship between Chinese ECI and the recipient countries' natural resource richness is not economically meaningful. Finally, while there is some support for the popular wisdom that China is willing to do business with countries with weak political rights, the evidence suggests that, ceteris paribus, its ECI is more likely to flow to countries with low corruption levels and, by extension, better institutions.

Financial constraints in investment:panel data results from Estonia, 1995–1999

To investigate investment behaviour the present study applies panel data techniques, in particular the Arellano-Bond (1991) GMM estimator, based on data on Estonian manufacturing firms from the period 1995-1999. We employ the model of optimal capital accumulation in the presence of convex adjustment costs. The main research findings are that domestic companies seem to be financially more constrained than those where foreign investors are present, and also, smaller firms are more constrained than their larger counterparts.

Institutions and equity structure of foreign affiliates

Question/Issue: We combine agency and institutional theory to explain the division of equity shares between the foreign (majority) and local (minority) partners within foreign affiliates. We posit that once the decision to invest is made, the ownership structure is arranged so as to generate appropriate incentives to local partners, taking into account both the institutional environment and the firm-specific difficulty in monitoring. Research Findings/Insights: Using a large firm-level dataset for the period 2003-2011 from 16 Central and Eastern European countries and applying selectivity corrected estimates, we find that both weaker host country institutions and higher share of intangible assets in total assets in the firm imply higher minority equity share of local partners. The findings hold when controlling for host country effects and when the attributes of the institutional environment are instrumented. Theoretical/Academic Implications: The classic view is that weak institutions lead to concentrated ownership, yet it leaves the level of minority equity shares unexplained. Our contribution uses a firm-level perspective combined with national-level variation in the institutional environment, and applies agency theory to explain the minority local partner share in foreign affiliates. In particular, we posit that the information asymmetry and monitoring problem in firms are exacerbated by weak host country institutions, but also by the higher share of intangible assets in total assets. Practitioner/Policy Implications: Assessing investment opportunities abroad, foreign firms need to pay attention not only to features directly related to corporate governance (e.g., bankruptcy codes) but also to the broad institutional environment. In weak institutional environments, foreign parent firms need to create strong incentives for local partners by offering them significant minority shares in equity. The same recommendation applies to firms with higher shares of intangible assets in total assets. © 2014 The Authors.

Why does tax have to be so taxing? The Court revisits the Franked Investment Income litigation

Examines the European Court of Justice ruling in Test Claimants in the FII Group Litigation v Inland Revenue Commissioners (C-35/11) on whether the differential tax treatment of domestic and foreign-sourced dividends in the UK was compatible with the freedom of establishment and free movement of capital principles. Outlines its guidance on how to assess this compatibility. Considers the ruling's implications for the UK tax system, the relationship between tax sovereignty and the internal market and the third-country dimension of the free movement of capital principle.

The relationship between internationalisation and innovation:internationalisation strategies, foreign firms', patenting behaviour and FDI spillovers

This thesis aims to contribute to the understanding of the relationships between internationalisation and innovation. Based on large comprehensive firm level data from China, this thesis comprises of three empirical chapters examining internationalisation from different aspects. Specifically, the first empirical work studies how firms internationalise. It links the choice of firms’ internationalisation strategies with firm characteristics. Additionally, it re-examines the stepwise internationalisation theory by distinguishing different foreign direct investment (FDI) motives. It proposes two pecking orders of firm performance in internationalisation strategies. The second empirical study investigates what kind of innovation activities internationalised firms do. It analyses the factors that drive foreign firms to patent in an emerging host country context. It stresses the importance of the intellectual property rights protection aspect of business environment at regional level in promoting patents, the role of industry dependence on external finance in shaping foreign firms’ patenting behaviour, as well as links foreign firms’ patent production with FDI motivation. The third empirical research examines the effect of internationalisation by examining the links between inward FDI and domestic innovation in a host country. It specifically examines technology spillovers from inward FDI through the direct lens of innovation (captured by grant patents), instead of adopting the indirect productivity approach widely employed by the literature. Distinguishing different types of innovation, it provides direct evidence of heterogeneous innovation spillovers from FDI.

Inward investment and the drivers of post recession recovery in Germany

This paper examines changes in the drivers of productivity in Germany over the period 1997-2012. We start by comparing the performance of German firms and inward investors before and during the recovery from the recent global financial crisis of 2008 across a range of sectors, and subsequently examine the channels through which different firms are able to generate productivity. Our results show that foreign investors are more productive than German MNEs and purely domestic firms, with the gap narrowing in the manufacturing sector, but growing in the service sector during the recovery period. We also contrast those firms for whom productivity growth is related to greater use of intangible assets, compared with those for whom productivity is linked to cash flow. Productivity of inward investors is driven by cash flow rather than intangible assets, these being limited to high-technology investors from the EU and the USA.

The determinants of R&D investment: A survey of the empirical research

This paper offers an extensive survey and a critical discussion of the empirical literature on the driving factors of R&D. These factors are subsumed under five broad types. The paper first summarises the key predictions from theory regarding each type's R&D effect. It then examines for which factors differences in the theoretical predictions can also be found in empirical studies, and for which factors the empirical evidence is more unanimous. As the focus is on the empirical literature, methodological issues are also highlighted. The major factor types identified in the literature are, individual firm or industry characteristics, particularly internal finance and sales; competition in product markets; R&D tax credits and subsidies; location and resource related factors, such as spillovers from university research within close geographic proximity, membership of a research joint venture and cooperation with research centres, and the human capital embodied in knowledge workers; and spillovers from foreign R&D. Although on balance there is a consensus regarding the R&D effects of most factors, there is also variation in results. Recent work suggests that accounting for non-linearities is one area of research that may explain and encompass contradictory findings.