The Impact of Foreign Government Investments on Corporate Performance: Evidence from the U.S.

Abstract

Foreign and politically connected large investors, like foreign government investors, improve firm value through the provision of foreign market access and government-related contracts. In the short run, the market welcomes foreign government investments in expectation of potential monitoring and internationalization benefits. In the long run, the target firms' degree of internationalization and Tobin's q increase substantially after foreign government investments. The increase in q is directly related to the number of government-related contracts granted by the investing countries. The target companies contribute to the investors' markets by transferring technological know-how, increasing their competitiveness, and providing certification for their markets.

Keywords: Foreign Government Investments; Foreign Political Connections; Government-related Contracts; Internationalization; Large Shareholders

JEL Classification: F23, G15, G23, G32, G34