Three essays on the effects of foreign direct investment on the host-country companies: An analysis in the private setting

Abstract

This thesis investigates how the presence of foreign controlling shareholders relates to the performance and financial reporting quality of private subsidiaries. We analyze unique, hand-collected data consisting of a sample of more than 2,000 private Spanish companies controlled by either a local or a foreign group during the period 1997-2013. Overall, results suggest a negative effect of foreign direct investment on the host-country companies. In particular, foreign ownership is associated with a sales advantage, but the higher personnel costs make foreign group subsidiaries less profitable than their locally-owned counterparts. As far as accounting quality is concerned, foreign-owned companies are also inferior to those owned by local groups, since we find a higher prevalence of earnings management and a higher likelihood of receiving modified audit reports for lack of transparency in subsidiaries of foreign groups. In sum, foreign control does not enhance firm profitability nor financial reporting quality, but fosters opacity.

Esta tesis analiza cómo la propiedad extranjera afecta al rendimiento y calidad de la información financiera de subsidiarias españolas no cotizadas durante el período 1997-2013. Los resultados sugieren un efecto negativo de la inversión directa extranjera en las empresas del país receptor. En particular, la propiedad extranjera está asociada con una ventaja en términos de ventas, pero los gastos de personal más altos hacen que las subsidiarias de grupos extranjeros sean menos rentables que sus homólogas de grupos locales. Respecto a la calidad de las cifras contables, las subsidiarias de grupos extranjeros también son inferiores a las controladas por grupos locales ya que encontramos mayor prevalencia del earnings management y mayor probabilidad de recibir informes de auditoría no limpios por falta de transparencia en las subsidiarias de grupos extranjeros. En conclusión, el control extranjero no mejora ni la rentabilidad ni la calidad de la información, sin embargo fomenta la opacidad.