Trust and Foreign Ownership: Evidence from Intra‐European Foreign Direct Investments

34 Pages Posted: 24 Jan 2019

See all articles by Marco Da Rin

Marco Da Rin

Tilburg University, Department of Finance; Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI)

Marina Di Giacomo

University of Torino - Department of Economics, Social Sciences, Applied Mathematics and Statistics

Alessandro Sembenelli

University of Turin - Department of Economics and Financial Sciences G. Prato

Date Written: February 2019

Abstract

We use a novel firm‐level dataset to test whether trust affects the volume and the ownership structure FDI across Europe. Our methodology deals with the endogeneity of trust from the investor to the recipient country. We expect such a trust measure to affect investment decisions, and the associated knowledge capital, differently across types of foreign investors. In particular, this effect is expected to be stronger for industrial investors who possess transferable knowledge capital. The data confirm our predictions. Higher trust increases the number and volume of FDIs, but also the probability of co‐investing with a partner from the recipient country.

Suggested Citation

Da Rin, Marco and Di Giacomo, Marina and Sembenelli, Alessandro, Trust and Foreign Ownership: Evidence from Intra‐European Foreign Direct Investments (February 2019). Review of International Economics, Vol. 27, Issue 1, pp. 313-346, 2019. Available at SSRN: https://ssrn.com/abstract=3320784 or http://dx.doi.org/10.1111/roie.12378

Marco Da Rin (Contact Author)

Tilburg University, Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Marina Di Giacomo

University of Torino - Department of Economics, Social Sciences, Applied Mathematics and Statistics ( email )

Corso Unione Sovietica 218 bis
Torino, 10134
Italy
+39 011 6706074 (Phone)
+39 011 6706062 (Fax)

HOME PAGE: http://www.unito.it/persone/madigiac

Alessandro Sembenelli

University of Turin - Department of Economics and Financial Sciences G. Prato ( email )

C. so Unione Sovietica, 218 Bis
Torino, 13820-4020
Italy
+39 011 670 6059 (Phone)
+39 011 670 6062 (Fax)

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