Two essays on international corporate finance
Moskalev, Sviatoslav A
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This dissertation consists of two essays. The first one investigates the relationship between the level of investor protection in host countries and inflows of foreign direct investment (FDI). It finds that more FDI flows into countries with better investor protection because in such countries foreign investors can extract from managers larger returns on their investments. This result holds for aggregate figures of FDI and its forms, as well as for deal-specific data. It also finds that foreign investors acquire more ownership in firms that come from countries with better investor protection, because ownership in such countries is associated with more valuable control rights. This result holds only for the cross-border mergers and acquisitions (M&As), and not for the cross-border joint ventures. Its regressions control for a large number of variables that were suggested by the theoretical and empirical literature as important explanatory variables of FDI. It contributes to both the FDI and investor protection literatures by providing an initial attempt to connect between these two important concepts. The second essay investigates the effect of cross-border M&As laws on dynamics of foreign acquisitions in various host countries. Its main finding suggests that foreign acquirers are less likely to acquire control over target companies that are located in countries with liberal foreign investment regime. This result is reconfirmed by controlling for the choice between cross-border M&As and JVs. It shows that in more developed countries, with liberal foreign investment regimes, open trade policies and stronger protection of shareholder rights, on average, foreign investors purchase smaller stakes in their cross-border enterprises (either M&As or JVs). This happens because in developed countries, foreign investors have a greater ability of resolving hold-up problems created by entrenched domestic partners through better courts and market mechanisms. In less developed countries, foreign investors will prefer to have a majority or full control, because if hold-up problems arise, their ability to protect themselves will be limited.