No abstract

This paper examines the impacts of economic institutions, including property rights protection and contract enforcement, on the location choice of foreign direct investment. From a data set of 6288 US multinationals investing in various China's regions for the period of 1993-2001, it is found that US multinationals prefer to invest in those regions that have better protection of intellectual property rights, lower degree of government intervention in business operations, lower level of government corruption, and better contract enforcement. Our results are robust to alternative measures of economic institutions, different sub-samples, and different estimation strategies, and to the inclusion of control variables such as those for agglomeration economies, and other traditional factors of FDI location choice.

This paper studies the relationship between corporate leverage and the ultimate corporate ownership structure, particularly the separation of cash flow rights and control rights. We empirically disentangle the three potential effects of the divergence of control rights from cash flow rights on corporate leverage, i.e. the non-dilution entrenchment effect, the signalling effect of debt and the reduce-debt-for-tunnelling effect. Our evidence from the East Asian corporations mainly supports the notion that controlling shareholders with relatively small ownership share tend to increase leverage out of the motive of raising external finance without diluting their shareholding dominance. The separation of cash flow rights and control rights contributes to the risk-taking tendency of the large controlling shareholders in capital structure choice. We argue that the risky capital structure choice serves as one potential channel through which weak corporate governance contributes to the severity of corporate value losses during the Asian financial crisis. Copyright Blackwell Publishing Ltd 2005.

Using an extensive data set on foreign invested enterprises in China from US, EU, Japan and Korea, we explore the role of agglomeration economies (network externalities) and government institutions as well as other more traditional factors in determining the (regional) locational choice of foreign direct investment (FDI). Employing firm-level discrete choice model, we find that provinces with stronger public institutions and higher horizontal and vertical agglomerations tend to attract more foreign investments. Furthermore, we explore the interplay of institutions and agglomeration economies. We detect that foreign horizontal agglomeration can partially overcome the negative impact of weak institutions on FDI entry. However, we obtain mixed evidence regarding the interplay between institutions and domestic horizontal agglomeration or vertical agglomeration. Copyright © 2007 John Wiley & Sons, Ltd.

Using an extensive data set on foreign invested enterprises (FIEs) in the Chinese mainland, we compare the sensitivities of the location choice of foreign direct investment (FDI) from six major source countries/areas (Hong Kong, Taiwan, US, EU, Japan and Korea) toward the variation in the strength of economic institutions across China's regions. It is found that FIEs from the source countries/areas that are culturally more remote from China often exhibit a stronger aversion to regions with weaker economic institutions. Moreover, this pattern is often more salient when FDI takes the form of fully-owned enterprises (FOEs) than when it takes the form of joint ventures (JVs).