by Caroline Eva Mursito 16943

Foreign Ownership and Investment Evidence from Korea

 Theory used: Modigliani and Miller (1958), maintained that a firm’s investment solely on the profit opportunity  Hypothesis: Cash flow sensitivity of investment to be lower in foreign owned firm than in domestically owned firm.

 Method of analysis: The Ordinary Least Square (OLS) estimation The Generalized Method of Moments (GMM) estimation  Variables used: K t I t Q t TA t B t E t CF t High i Low i Before t After t

 Results of the analysis: The availability of internal funds does affect investment levels. Cash flow has significant impact on the investment of firm with low foreign ownership. Liquidity constraints are reduced mainly in firms with low foreign ownership. If the value of the firm is directly related to financial constraint that the firm faces, the effect of cash flow on investment may also have non-linear relationship with the level of foreign ownership. Foreign ownership seems to have a linear relationship to financial constraints.

 Conclusions: Cash-flow sensitivity of investment decreases as foreign ownership increases. Foreign ownership improves a firm’s accessibility to external finance. Does not suggest that developing countries should entirely open their stock market to foreign investors. Suggest that foreign ownership plays role in reducing financial constraints on firms, and improves accessibility of external financing for investment.

Foreign Ownership, Foreign Technology and China’s Economic Transition: A Case Study on Firm

 Theory used: Based on the previous studies  Many suggest that technology transfer associated with trade and foreign investment has a positive impact on the growth and, in particular, the export of local firms.  Hypothesis: Foreign investment and knowledge inflow have significant positive impact on firm’s export.

 Method of analysis: The Ordinary Least Square (OLS) Tobit method  Variables used: EXPT_D EXPT0_D PCEXPT91 LEXPT91 LEXPT0 EDU SOE PVT FRN FJV TECH IMPORT CONTACT CONTD COMPETITION

 Results of the analysis: Knowledge inflow from foreign sources is positively correlated with the profitability that forms will export in the subsequent years. The informal contacts with foreign business are all positively correlated with a firm’s export. The firm will likely to start exporting and export more because firms is associated with foreign business such as equity and as a result receives technology transfer. A firm’s perceived competition intensity is positively related to foreign knowledge inflow, same with the overall education level of firm’s employee with the likelihood that the firm receives foreign knowledge.

 Conclusions: The hypothesis is tested true. It is beneficial to maintain an open economic environment to encourage competition and cooperation between local firms and foreign affiliates.