Publication Type

Journal Article

Publication Date

6-2006

Abstract

This paper investigates the effect of foreign ownership on strategic investments in Japanese corporations. Foreign owners are typically portfolio investors who frequently buy and sell shares and hold diversified portfolios of small stakes in many firms. Prior research has presented two conflicting perspectives on the role of such investors: (a) their frequent trading leads to pressure for short-term returns that fosters underinvestment; (b) their active trading fosters appropriate investments. We investigated the relationship between foreign ownership and strategic investments using dynamic panel data analysis of a sample of 146 Japanese manufacturing firms from 1991 to 1997. We found that foreign ownership enhances strategic investments (in R&D and capital intensity) to a greater extent when firms have growth opportunities than when they lack such opportunities. We conclude that foreign ownership fosters appropriate investment.

Keywords

Corporate governance, R&D, ownership, Japan

Discipline

Asian Studies | Business Law, Public Responsibility, and Ethics | Strategic Management Policy

Research Areas

Strategy and Organisation

Publication

Strategic Management Journal

Volume

27

Issue

6

First Page

591

Last Page

600

ISSN

0143-2095

Identifier

10.1002/smj.523

Publisher

Wiley

Copyright Owner and License

Authors

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://doi.org/10.1002/smj.523