Foreign Controlling Shareholders and Corporate Investment

Abstract

We examine how firms with foreign controlling shareholders (promoters) affect corporate investment in India. Using a large sample of publicly listed non-financial firms, we find that firms with foreign controlling shareholders invest less and, as their ownership increases capital expenditures decrease. The negative effect of foreign controlling shareholders on corporate investment is stronger among firms with a high-quality information environment and firms prone to agency problems. We note that firms with foreign controlling shareholders invest efficiently, invest in projects involving the expansion of existing facilities (rather than establishing new units), and their projects are larger than firms with no foreign controlling shareholder.

Keywords: Controlling shareholders, promoters, foreign investors, capital expenditure, investment efficiency

JEL Classification: G31