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The Information Environment and the Investment Decisions of Multinational CorporationsNemit ShroffMassachusetts Institute of Technology (MIT) - Sloan School of Management Rodrigo S. VerdiMassachusetts Institute of Technology (MIT) Gwen YuHarvard Business School March 6, 2012 MIT Sloan Research Paper No. 4942-11 Abstract: This paper examines how the external information environment in which foreign subsidiaries operate affects investment decisions of multinational corporations (MNCs). We hypothesize and find that the investment decisions of foreign subsidiaries in country-industries with more transparent information environments are more responsive to local growth opportunities than those of foreign subsidiaries in country-industries with less transparent information environments. Further, this effect is larger when there is greater ‘distance’ between the parent and the subsidiary. Our results suggest that the external information environment helps mitigate agency problems that arise when firms expand their operations across borders. This paper contributes to the literature by showing that the external information environment helps MNCs mitigate information frictions within the firm.
Number of Pages in PDF File: 48 Keywords: Corporate Investment, Investment Efficiency, Information Environment, Information Quality, Information Asymmetry, Multinational Corporations, MNCs JEL Classification: D9, F3, G30, G31, H25, H26, O4 working papers seriesDate posted: October 6, 2011 ; Last revised: March 8, 2012Suggested CitationContact Information
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