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

Sajid Anwar; S Sun

doi:10.1016/j.jcorpfin.2014.11.003

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

Journal article

Open access

Peer reviewed

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

Sajid Anwar and S Sun

Journal of Corporate Finance, Vol.30, pp.32-43

2015

DOI: https://doi.org/10.1016/j.jcorpfin.2014.11.003

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Abstract

foreign investment

capital structure

leverage

productivity spillovers

panel data analysis

China

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.

Details

Title: Can the presence of foreign investment affect the capital structure of domestic firms?
Authors: Sajid Anwar (Author) - University of the Sunshine Coast - Faculty of Arts and Business
S Sun (Author) - James Cook University
Publication details: Journal of Corporate Finance, Vol.30, pp.32-43
Publisher: Elsevier BV, North-Holland
Date published: 2015
DOI: 10.1016/j.jcorpfin.2014.11.003
ISSN: 0929-1199
Organisation Unit: School of Business and Creative Industries; Indigenous and Transcultural Research Centre; University of the Sunshine Coast, Queensland; USC Business School - Legacy
Language: English
Record Identifier: 99449104902621
Output Type: Journal article

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Collaboration types: Domestic collaboration; International collaboration
Web Of Science research areas: Business, Finance