Property Rights Institutions, Foreign Investment, and the Valuation of Multinational Firms

53 Pages Posted: 18 Sep 2015 Last revised: 22 Apr 2019

See all articles by Leming Lin

Leming Lin

University of Pittsburgh - Katz Graduate School of Business

Atanas Mihov

Federal Reserve Bank of Richmond

Leandro Sanz

Federal Reserve Banks - Federal Reserve Bank of Richmond

Detelina Stoyanova

Florida State University

Date Written: December 7, 2017

Abstract

We study the effect of property rights institutions in host countries, the institutions protecting investors from expropriation by host country agents, on the geographic structure and valuation of U.S. multinational corporations (MNCs). We provide firm-level evidence that better property rights attract investment from MNCs. We disentangle the effects of the Stulz (2005) "twin agency problems" in the context of foreign direct investment, and show that our results are not driven by legal institutions protecting investors from expropriation by corporate insiders. Further, we show that changes in the quality of property rights in locations where MNCs operate have material impact on MNCs' valuations.

Keywords: Multinational Corporations; Foreign Direct Investment; Country Governance; Property Rights Institutions; Investor Protection; Firm Valuation

JEL Classification: G30, G34, 38, F30

Suggested Citation

Lin, Leming and Mihov, Atanas and Sanz, Leandro and Stoyanova, Detelina, Property Rights Institutions, Foreign Investment, and the Valuation of Multinational Firms (December 7, 2017). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2662259 or http://dx.doi.org/10.2139/ssrn.2662259

Leming Lin

University of Pittsburgh - Katz Graduate School of Business ( email )

346 Mervis Hall
University of Pittsburgh
Pittsburgh, PA 15260
United States

Atanas Mihov (Contact Author)

Federal Reserve Bank of Richmond ( email )

530 East Trade Street
Charlotte, NC 28202
United States

Leandro Sanz

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Detelina Stoyanova

Florida State University ( email )

Tallahasse, FL 32306
United States

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