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Investor Protection and Real Investment by U.S. Multinationals

53 Pages Posted: 1 Jun 2005  

Eric K. Kelley

University of Tennessee

Tracie Woidtke

University of Tennessee, Haslam College of Business

Abstract

In spite of the growing research concerning investor protection, the relation between investor protection and real investment by foreign multinationals is largely unexplored. Recognizing this relation, however, is especially important in light of the surge in cross-border activity in recent decades and the potential impact cross-border investment can have on a country's economic development. We find that U.S. multinational foreign investment is significantly greater both when shareholder protection is poor and when creditor protection is poor. Consistent with existing literature, our results suggest that U.S. firms have greater comparative advantages when local firms in poor investor protection countries either (1) invest sub-optimally due to agency problems or (2) have constrained access to debt capital. The increased investment by U.S. multinationals in poor investor protection countries is of particular interest, because it suggests an important way in which adverse outcomes related to poor investor protection may be mitigated.

Keywords: Investor protection, corporate governance, multinationals, cross-border investment

JEL Classification: G30, F30, F40

Suggested Citation

Kelley, Eric K. and Woidtke, Tracie, Investor Protection and Real Investment by U.S. Multinationals. Journal of Financial and Quantitative Analysis, Forthcoming. Available at SSRN: https://ssrn.com/abstract=732524

Eric K. Kelley

University of Tennessee ( email )

916 Volunteer Blvd
Knoxville, TN 37996
United States

Tracie Woidtke (Contact Author)

University of Tennessee, Haslam College of Business ( email )

428 Stokely Management Center
Knoxville, TN Tennessee 37996-0540
United States
865-974-1718 (Phone)
865-974-1716 (Fax)

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