Information Environment and the Investment Decisions of Multinational Corporations

By Nemit Shroff, Rodrigo S. Verdi, Gwen Yu. 2013

341 citations recorded by the source corpus.

ABSTRACT: This paper examines how the external information environment in which foreign subsidiaries operate affects the investment decisions of multinational corporations (MNCs). We hypothesize and find that the investment decisions of foreign subsidiaries in country-industries with more transparent information environments are more responsive to local growth opportunities than are those of foreign subsidiaries in country-industries with less transparent information environments. Further, this effect is larger when (1) there are greater cross-border frictions between the parent and subsidiary, and (2) the parents are relatively more involved in their subsidiaries' investment decision-making process. Our results suggest that the external information environment helps mitigate the agency problems that arise when firms expand their operations across borders. This paper contributes to the literature by showing that the external information environment helps MNCs mitigate information frictions within the firm...

Subfields: Strategy and Management

View Paper: https://www.semanticscholar.org/paper/325c3a2e7752a233727b76069c2359a3f346949e

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Citations in the corpus

Frequent Financial Reporting and Managerial Myopia (2018, result): “Our paper is also related to prior work on the relation between informational properties of earnings and investments (e.g., Biddle and Hilary, 2006; Biddle et al., 2009; Shroff et al., 2014; Balakrishnan et al., 2014).”
Earnings Management within Multinational Corporations (2018, methodology): “We identify ultimate owners by adopting an approach similar to Shroff et al. (2014) who follow the Orbis ultimate owner classification.”
Accounting Standards and International Portfolio Holdings (2014, background): “2008; Shroff et al. 2013), the literature has focused less on the effect of IFRS adoption in the investor’s country.”
Real Effects of the Audit Choice (2016, positive): “(2013) and Shroff et al. (2014) show that disclosure regulation has positive externalities with respect of peer firms’ investment decisions.”
The Effect of Tax Authority Monitoring and Enforcement on Financial Reporting Quality (2014, positive): “The ratio of these two numbers is our measure of statistical significance (see Noreen 1989 and Shroff et al., 2014).”
Tax Rates and Corporate Decision Making (2017, neutral): “…capital markets and greater agency problems from having geographic dispersed operations (e.g., Desai, Foley, and Hines 2004, Giroud 2013, and Shroff, Verdi, and Yu 2014), thereby creating a potential correlated omitted variable problem. corporate outcomes even for firms that use the MTR/STR…”
Corporate investment and changes in GAAP (2016, positive): “24 Following Shroff et al. (2014), I test for the difference in coefficients across the two regressions using a bootstrap test.”
Does a common set of accounting standards affect tax-motivated income shifting for multinational firms? (2016, result): “This relatively low rate of IFRS adoption for unconsolidated financial reporting is consistent with other studies (Jermakowicz and GornikTomaszewski, 2006; Shroff et al., 2014; Watrin et al., 2014).”
A review of the IFRS adoption literature (2016, background): “28 Both Wang (2014) and Yip and Young (2012) exclude financial firms from their samples. Wang (2014) also excludes utilities.”
Management Forecast Quality and Capital Investment Decisions (2014, positive): “…Durnev and Mangen (2009), McNichols and Stubben (2008), Biddle et al. (2009), Bens, Goodman, and Neamtiu (2012), Badertscher, Shroff, and White (2013), Shroff, Verdi, and Yu (2013) and Shroff (2013) provide arguments and evidence linking external reporting to internal investment decisions.”