Do Foreign Owners Favor Short-Term Profit? Evidence from Germany

37 Pages Posted: 24 May 2014

See all articles by Verena Dill

Verena Dill

University of Trier - Department of Economics

Uwe Jirjahn

University of Trier - Faculty of Economics

Stephen C. Smith

George Washington University - Department of Economics

Abstract

Comparing domestic- and foreign-owned firms in Germany, this paper finds that foreign-owned firms are more likely to focus on short-term profit. This influence is particularly strong if the local managers of the German subsidiary are not sent from the foreign parent company. Moreover, the physical distance between the foreign parent company and its German subsidiary increases the probability of focusing on short-term profit. These findings conform to the hypothesis that foreign owners facing an information disadvantage concerning the local conditions of their subsidiaries are more likely to favor short-term profit. However, we do not identify differences in "short-termism" between investors from "Anglo-Saxon" and other foreign countries; rather, results point in the direction of more general features of corporate globalization.

Keywords: foreign ownership, short-termism, asymmetric information, globalization, multinational enterprises, stakeholders

JEL Classification: F23, G34, M16, P10

Suggested Citation

Dill, Verena and Jirjahn, Uwe and Smith, Stephen C., Do Foreign Owners Favor Short-Term Profit? Evidence from Germany. IZA Discussion Paper No. 8165. Available at SSRN: https://ssrn.com/abstract=2441441

Verena Dill (Contact Author)

University of Trier - Department of Economics ( email )

15, Universitaetsring
Trier, 54286
Germany

Uwe Jirjahn

University of Trier - Faculty of Economics ( email )

Trier, 54286
Germany

Stephen C. Smith

George Washington University - Department of Economics ( email )

2115 G Street NW
306 Monroe Hall
Washington, DC 20052
United States

HOME PAGE: http://https://www2.gwu.edu/~iiep/about/faculty/ssmith/

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