Kiel Working Papers, Kiel Institute for World Economics
No 1433:
Whole versus Shared Ownership of Foreign Affiliates
Horst Raff, Michael Ryan and Frank Stähler
Abstract: This paper studies why multinational firms often share
ownership of a foreign affiliate with a local partner even in the absence
of government restrictions on ownership. We show that shared ownership may
arise, if (i) the partner owns assets that are potentially important for
the investment project, and (ii) the value of these assets is private
information. In this context shared ownership acts as a screening device.
Our model predicts that the multinational’s ownership share is increasing
in its productivity, with the most productive multinationals choosing not
to rely on a foreign partner at all. This prediction is shown to be
consistent with data on the ownership choices of Japanese multinationals
Keywords: Foreign direct investment, multinational enterprise, joint venture, productivity; (follow links to similar papers)
JEL-Codes: F23,; L20; (follow links to similar papers)
40 pages, July 2008
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