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Corporate Governanceand Foreign Direct Investment
Joseph D. Alba, Donghyun Park, and Peiming Wang
No. 202 | May 2010
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ADB Economics Working Paper Series No. 202
Corporate Governance
and Foreign Direct Investment
Joseph D. Alba, Donghyun Park, and Peiming Wang
May 2010
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Contents
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Abstract
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I. Introduction
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$VQRWHGHDUOLHUWKHUHPD\EHFRPSOHPHQWDULWLHVEHWZHHQ0$)',DQGQRQ0$)',
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C. Estimation
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SURSRVHGE\'HPSVWHUHWDOXQWLOWKHSDUDPHWHUHVWLPDWHVFRQYHUJHDQGWKHQ
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WKHPRGHOSDUDPHWHUVDQGVWDQGDUGHUURUV,QWKHLPSOHPHQWDWLRQRIWKH(0DOJRULWKP
ZHWUHDWWKHSDUWLDOO\REVHUYDEOHELQDU\YDULDEOH it DVPLVVLQJLQIRUPDWLRQDQGGHQH
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III. Determinants of FDI
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FRPPXQLFDWLRQ7KHRWKHUUHJXODWLRQUHTXLUHGSXEOLFFRPSDQLHVWRSURYLGHPRUHGHWDLOHG
GLVFORVXUHRIWRSH[HFXWLYHFRPSHQVDWLRQDQGLWVUHODWLRQWRWKHUPVVWRFNSHUIRUPDQFH
7KHFRQVHTXHQWLPSURYHPHQWLQ86FRUSRUDWHJRYHUQDQFHPD\KDYHUHGXFHGGRPHVWLF
DQGFURVVERUGHU0$DFWLYLW\$OED3DUNDQG:DQJQGHPSLULFDOHYLGHQFH
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QDQFHPRUHH[SHQVLYHWKDQLQWHUQDOQDQFHDQGIRUHLJQUPVZKRZLVKWRELGIRU
86DVVHWVUDLVHPRVWRIWKHLUIXQGVLQWHUQDOO\6LQFHLQWHUQDOIXQGVRIIRUHLJQUPVDUH
GHQRPLQDWHGLQIRUHLJQFXUUHQF\DGHSUHFLDWLRQRIWKH86GROODULQFUHDVHVIRUHLJQUPV
UHODWLYHZHDOWKDQGDOORZVWKHPWRELGPRUHDJJUHVVLYHO\IRU86DVVHWV0RYHPHQWVRI
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it, DFPit, DQGDFSit UHVSHFWLYHO\:HH[SDQG.35VHPSLULFDOIUDPHZRUNE\DGGLQJ
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H[SHFWDQHJDWLYHFRHIFLHQWRQWKLVGXPP\EHFDXVHVWURQJHUFRUSRUDWHJRYHUQDQFH
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IV. Empirical Results
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VXJJHVWVWKDWWKHGHWHULRUDWLRQRIQDQFLDOKHDOWKRIDUPVPDLQEDQNKDVDQHJDWLYHLPSDFWRQERWKW\SHVRI)',SURMHFWV7KHUHVXOWOHQGVVXSSRUWWR.OHLQHWDOVUHODWLYH
DFFHVVWRFUHGLWK\SRWKHVLV)XUWKHUPRUHWKHFRQGLWLRQDOUDWHRI0$)',LVSRVLWLYHO\
DVVRFLDWHGZLWKUPVL]H')6DWOHYHORIVLJQLFDQFH7KLVVXJJHVWVWKDWUPV
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Ta
ble1:
Es
tima
tes
,t-r
atios
,an
dlog-l
ike
lihoo
dfor
the
BZINBan
dMBZINBMo
de
ls
BZINB
MBZINB
Es
timate
t-ra
tio
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tima
te
t-
ratio
Es
tima
te
t-ra
tio
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tima
te
t-ra
tio
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tima
te
t-ra
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M&A
Non
M&A
M&A
Non
M&A
Intercept
1.4
139**
*
11.4
445
0.2
729***
2.9
766
1.3
570***
10.9
395
0.2
136**
2.3
710
DR1
0.0
669
0.3
468
0.0
175
0.1
256
0.0
737
-0.3
876
0.0
319
0.2
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DR2
0.7
182**
2.0
430
0.6
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2.5
443
0.7
952**
2.3
151
0.6
883***
3.0
887
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0.2
397
1.1
410
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2.9
770
0.1
556
0.7
403
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467**
2.3
750
DFP
6.0
595
1.0
706
2.7
175
0.6
309
6.5
200
1.1
744
1.3
351
0.3
202
DFS
1.5
372**
2.2
471
0.4
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956
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597**
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3.8
232
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2.4
025
0.7
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1.8
252
Zero-Probability
p0
p00
p11
Intercept
7.4
265**
*
3.0
312
3.6
053
0.7
687
2.4
172
0.6
012
11.4
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359
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0.3
146
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2.9
645
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106
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0.1
136
0.2
181
2.1
172
0.1
427
0.4
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0.5
441
1.3
225
0.9
396
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0.6
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2.0
875
1.1
596
1.7
358
0.3
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0.6
999
0.6
257
0.8
504
FP
8.2
283
1.4
389
7.9
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670
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4.3
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6.2
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632**
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281
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244***
3.1
515
Log-likelihood
2347.8
5
2330.7
5
*Signifcantat10%;**signifcan
tat5%;***signifcantat10%.
Note:
ThelikelihoodratioteststatisticorcomparingtheMBZINBwiththe
BZINBis34.2
1withp-valueo0.0
06.
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2 The percentage o the change in the conditional rate between the prior and post-1992 improvement in UScorporate governance is calculated by (exp(-0.7972)-1) = -54.94% or M&A FDI and (exp(-0.2503)-1) = 22.14% ornon-M&A FDI.
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19/21
V. Concluding Observations
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SURWDELOLW\DQGVL]H7RFDUU\RXWRXUHPSLULFDODQDO\VLVZHGHYHORSDQGDSSO\D0DUNRY
ELYDULDWHQHJDWLYHELQRPLQDOUHJUHVVLRQPRGHOIRUWKHMRLQWDQDO\VLVRIELYDULDWHSDQHO
FRXQWGDWD7KHPRGHODOORZVIRUDKLJKSURSRUWLRQRIH[FHVV]HURVSRVLWLYHFRUUHODWLRQ
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FRQVLVWHQWZLWKWKHIHZH[LVWLQJHPSLULFDOVWXGLHVRIWKLVLVVXH2XUQGLQJVDOVROHQG
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7/30/2019 Corporate Governance and Foreign Direct Investment
20/21
References
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7/30/2019 Corporate Governance and Foreign Direct Investment
21/21
About the Paper
Joseph D. Alba, Donghyun Park, and Peiming Wang use frm-level evidence rom Japaneseoreign direct investment (FDI) into the United States (US) to investigate the eect o UScorporate governance on merger and acquisition (M&A) and non-M&A Japanese FDI. Theresults indicate that stronger US corporate governance contributed to the decline in bothM&A and non-M&A Japanese FDI into the US during the 1990s. The evidence thus suggeststhat corporate governance may aect both M&A and non-M&A FDI.
About the Asian Development Bank
ADBs vision is an Asia and Pacifc region ree o poverty. Its mission is to help its developingmember countries substantially reduce poverty and improve the quality o lie o theirpeople. Despite the regions many successes, it remains home to two-thirds o the worldspoor: 1.8 billion people who live on less than $2 a day, with 903 million struggling onless than $1.25 a day. ADB is committed to reducing poverty through inclusive economicgrowth, environmentally sustainable growth, and regional integration.
Based in Manila, ADB is owned by 67 members, including 48 rom the region. Its maininstruments or helping its developing member countries are policy dialogue, loans, equityinvestments, guarantees, grants, and technical assistance.
Asian Development Bank6 ADB Avenue, Mandaluyong City1550 Metro Manila, Philippineswww.adb.org/economicsISSN: 1655-5252Publication Stock No. Printed in the Philippines