Can the presence of foreign investment affect the capital structure of domestic firms?

Anwara, Sajid, and Sun, Sizhong (2015) Can the presence of foreign investment affect the capital structure of domestic firms? Journal of Corporate Finance, 30. pp. 32-43.

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Abstract

Using a simple theoretical model, this paper argues that an increase in foreign presence, which refers to the level of foreign investment in a given domestic firm, can affect the leverage of domestic firms. We apply the model to explore the link between foreign presence and leverage with firm level panel data from China. The empirical estimation, using instrumental variable Tobit regression, reveals that, in overall terms, the impact of foreign presence on the leverage of domestic firms in China's manufacturing sector is negative. We find that the negative impact on the leverage of privately owned firms is large relative to state-owned firms. Furthermore, we find that the impact of foreign presence on leverage varies from industry to industry, which is consistent with the presence of heterogeneity in the productivity spillover effect.

Item ID: 36801
Item Type: Article (Research - C1)
ISSN: 1872-6313
Keywords: foreign investment; capital structure; leverage; productivity spillovers; panel data analysis; China
Date Deposited: 15 Mar 2016 03:28
FoR Codes: 14 ECONOMICS > 1402 Applied Economics > 140207 Financial Economics @ 50%
14 ECONOMICS > 1402 Applied Economics > 140209 Industry Economics and Industrial Organisation @ 50%
SEO Codes: 91 ECONOMIC FRAMEWORK > 9102 Microeconomics > 910203 Industrial Organisations @ 100%
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