Understanding and Accessing Financial Market

9th Class of Seminar in Finance Management

byCaroline Eva Mursito

16943

ARTICLE FROM CRPForeign 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:• Kt

• It• Qt

• TAt

• Bt

• Et

• CFt

• Highi

• Lowi

• Beforet

• Aftert

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.

ARTICLE FROM STUDENTForeign 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.

THANK YOU FOR YOUR ATTENTION