Does Corporate Governance or Transparency Affect Foreign Direct Investment?
The paper investigates the relationship between the foreign direct investment (FDI) and the corporate governance or transparency by investigating the country-level FDI flows, FDI inward performance, corporate governance and transparency variables. From the regression analysis with Newey-West estimator of 28 country panel data from 1990- 2002, we find strong positive relationships between corporate governance or transparency level of hosting countries and FDI inward performance within hosting countries. A strong positive relationship is found between anti-director rights level or number of analysts of hosting countries and FDI inward performance within hosting countries. Also, we find a positive relationship between the number of analysts of hosting countries and FDI inflows. The empirical results are consistent with stock market liberalizations and corporate governance explanations of reasons for FDI.
[1] Admati, A. and Pfleiderer, P. (2000). Forcing firms to talk, Financial
disclosure and externalities, Review of Financial Studies, 13, 479-520.
[2] Aizenman, J. and M. M. Spiegel (2002). Institutional Efficiency,
Monitoring Costs, and the Investment Share of FDI, NBER Working
Paper No. 9324.
[3] Baker, M.P., Foley, C.F. and Wurgler, J. (2009). Multinationals as
arbitrageurs, The effect of stock market valuations on foreign direct
investment, Review of Financial Studies, 22/1, 337-369.
[4] Bekaert, G. and Harvey, C.R. (2000b). Foreign speculators and emerging
equity markets, Journal of Finance, 55, 565-613.
[5] Blonigen, B.A. (1997). Firm-specific assets and the link between
exchange rates and foreign direct investment, American Economic
Review, 87, 447-465.
[6] Brune, N., Garrett, G., Guisinger, A., Sorens, J., 2001. The political
economy of capital account liberalization. UCLA International Institute
working paper.
[7] Bushman, R., Piotroski, J. and Smith, A. (2004). What determines
corporate transparency?, Journal of Accounting Research, 42, 207-252.
[8] Demirguc-Kunt, A. and Levine, R. (1996). Stock market development
and financial intermediaries, Stylized facts, The World Bank Economic
Review, 10, 291-321.
[9] Desai, M.C. and Foley, F., Hines, J.R. (2004). Foreign direct investment
in a world of multiple taxes, Journal of Public Economics, 88, 2727-
2744.
[10] Dewenter, K. (1995). Do exchange rate changes drive foreign direct
investment?, Journal of Business, 68, 405-433.
[11] Eaton, J. and A. Tamura (1994). Bilateralism and Regionalism in
Japanese and U.S. Trade and Direct Foreign Investment Patterns, Journal
of the Japanese and International Economies, 8/4, 478-510.
[12] Froot, K.A. and Stein, J.C. (1991). Exchange rates and foreign direct
investment, An imperfect capital markets approach, The Quarterly
Journal of Economics, 106, 1191-1217.
[13] Globerman, S. and D. Shapiro (2002). Global Foreign Direct Investment
Flows, The Role of Governance Infrastructure, World Development,
30/11, 1899-1919.
[14] Habib, M. and L. Zurawicki (2002). Corruption Differentials and
Foreign Direct Investment, Journal of International Business Studies,
33/2, 291-308
[15] Henry, P.B. (2000a). Stock market liberalization, economic reform, and
emerging market equity prices, Journal of Finance, 55, 529-564.
[16] Henry, P.B. (2000b). Do stock market liberalization cause investment
booms?, Journal of Financial Economics, 58, 301-334.
[17] Kaufmann, D., A. Kraay and P. Zoido-Lobat├│n (1999). Aggregating
Governance Indicators, Policy Research Paper No. 2195 (Washington,
DC, The World Bank).
[18] Kim, W.S., Esmeralda and L., Zychowicz, E.J. (2005). Can stock market
liberalization in emerging economies mitigate legal systems
deficiencies?, Journal of Financial Research, 28, 421-437.
[19] Klein, M.W. and Rosengren, E. (1994). The real exchange rate and
foreign direct investment in the United States, Journal of International
Economics, 36, 373-389.
[20] La Porta, R., Lopez-De-Silanes, F., Shleifer, A. and Vishny, R. (1998).
Law and finance, Journal of Political Economy, 106/6, 1113-1155.
[21] La Porta, R., F. Lopez-de-Silanes, A. Shleifer and R. Vishny (1998b).
The Quality of Government, NBER Working Paper No. 7403.
[22] Levchenko, A. (2004). Institutional Quality and International Trade,
HIMF Working Paper No. 04/231
[23] Stein, E. and Daude, C. (2001). Institutions, Integration and the location
of Foreign Direct Investment, IAB, mimeo
[24] Wei, S.J. (1997). Why is Corruption So Much More Taxing Than Tax?
Arbitrariness Kills, NBER Working Number No. 6255, National Bureau
of Economic Research, Inc.
[25] Wei, S.J. (2000). How Taxing is Corruption on International Investors?,
The Review of Economics and Statistics, 82/1, 1-11.
[26] Wheeler, D. and Mody, A. (1992). International Investment Location
Decisions, The Case of U.S. Firms, Journal of International Economics,
33, 57-76.
[27] United Nations Conference on Trade and Development. Division on
Investment, Technology, and Enterprise Development. 2002 World
Investment Report
[1] Admati, A. and Pfleiderer, P. (2000). Forcing firms to talk, Financial
disclosure and externalities, Review of Financial Studies, 13, 479-520.
[2] Aizenman, J. and M. M. Spiegel (2002). Institutional Efficiency,
Monitoring Costs, and the Investment Share of FDI, NBER Working
Paper No. 9324.
[3] Baker, M.P., Foley, C.F. and Wurgler, J. (2009). Multinationals as
arbitrageurs, The effect of stock market valuations on foreign direct
investment, Review of Financial Studies, 22/1, 337-369.
[4] Bekaert, G. and Harvey, C.R. (2000b). Foreign speculators and emerging
equity markets, Journal of Finance, 55, 565-613.
[5] Blonigen, B.A. (1997). Firm-specific assets and the link between
exchange rates and foreign direct investment, American Economic
Review, 87, 447-465.
[6] Brune, N., Garrett, G., Guisinger, A., Sorens, J., 2001. The political
economy of capital account liberalization. UCLA International Institute
working paper.
[7] Bushman, R., Piotroski, J. and Smith, A. (2004). What determines
corporate transparency?, Journal of Accounting Research, 42, 207-252.
[8] Demirguc-Kunt, A. and Levine, R. (1996). Stock market development
and financial intermediaries, Stylized facts, The World Bank Economic
Review, 10, 291-321.
[9] Desai, M.C. and Foley, F., Hines, J.R. (2004). Foreign direct investment
in a world of multiple taxes, Journal of Public Economics, 88, 2727-
2744.
[10] Dewenter, K. (1995). Do exchange rate changes drive foreign direct
investment?, Journal of Business, 68, 405-433.
[11] Eaton, J. and A. Tamura (1994). Bilateralism and Regionalism in
Japanese and U.S. Trade and Direct Foreign Investment Patterns, Journal
of the Japanese and International Economies, 8/4, 478-510.
[12] Froot, K.A. and Stein, J.C. (1991). Exchange rates and foreign direct
investment, An imperfect capital markets approach, The Quarterly
Journal of Economics, 106, 1191-1217.
[13] Globerman, S. and D. Shapiro (2002). Global Foreign Direct Investment
Flows, The Role of Governance Infrastructure, World Development,
30/11, 1899-1919.
[14] Habib, M. and L. Zurawicki (2002). Corruption Differentials and
Foreign Direct Investment, Journal of International Business Studies,
33/2, 291-308
[15] Henry, P.B. (2000a). Stock market liberalization, economic reform, and
emerging market equity prices, Journal of Finance, 55, 529-564.
[16] Henry, P.B. (2000b). Do stock market liberalization cause investment
booms?, Journal of Financial Economics, 58, 301-334.
[17] Kaufmann, D., A. Kraay and P. Zoido-Lobat├│n (1999). Aggregating
Governance Indicators, Policy Research Paper No. 2195 (Washington,
DC, The World Bank).
[18] Kim, W.S., Esmeralda and L., Zychowicz, E.J. (2005). Can stock market
liberalization in emerging economies mitigate legal systems
deficiencies?, Journal of Financial Research, 28, 421-437.
[19] Klein, M.W. and Rosengren, E. (1994). The real exchange rate and
foreign direct investment in the United States, Journal of International
Economics, 36, 373-389.
[20] La Porta, R., Lopez-De-Silanes, F., Shleifer, A. and Vishny, R. (1998).
Law and finance, Journal of Political Economy, 106/6, 1113-1155.
[21] La Porta, R., F. Lopez-de-Silanes, A. Shleifer and R. Vishny (1998b).
The Quality of Government, NBER Working Paper No. 7403.
[22] Levchenko, A. (2004). Institutional Quality and International Trade,
HIMF Working Paper No. 04/231
[23] Stein, E. and Daude, C. (2001). Institutions, Integration and the location
of Foreign Direct Investment, IAB, mimeo
[24] Wei, S.J. (1997). Why is Corruption So Much More Taxing Than Tax?
Arbitrariness Kills, NBER Working Number No. 6255, National Bureau
of Economic Research, Inc.
[25] Wei, S.J. (2000). How Taxing is Corruption on International Investors?,
The Review of Economics and Statistics, 82/1, 1-11.
[26] Wheeler, D. and Mody, A. (1992). International Investment Location
Decisions, The Case of U.S. Firms, Journal of International Economics,
33, 57-76.
[27] United Nations Conference on Trade and Development. Division on
Investment, Technology, and Enterprise Development. 2002 World
Investment Report
@article{"International Journal of Business, Human and Social Sciences:60929", author = "Haksoon Kim", title = "Does Corporate Governance or Transparency Affect Foreign Direct Investment?", abstract = "The paper investigates the relationship between the foreign direct investment (FDI) and the corporate governance or transparency by investigating the country-level FDI flows, FDI inward performance, corporate governance and transparency variables. From the regression analysis with Newey-West estimator of 28 country panel data from 1990- 2002, we find strong positive relationships between corporate governance or transparency level of hosting countries and FDI inward performance within hosting countries. A strong positive relationship is found between anti-director rights level or number of analysts of hosting countries and FDI inward performance within hosting countries. Also, we find a positive relationship between the number of analysts of hosting countries and FDI inflows. The empirical results are consistent with stock market liberalizations and corporate governance explanations of reasons for FDI.
", keywords = "corporate governance, corporate transparency, FDIflows, FDI inward performance", volume = "4", number = "7", pages = "1792-8", }
