TITLE:
Shades of FDI Capital, Business Group Affiliation and Excess Value Creation
AUTHORS:
Kunal, B. V. Phani
KEYWORDS:
FDI, Business Group Affiliation, Propping, Tunneling Effect, Confirmatory Factor Analysis, Excess Value Creation
JOURNAL NAME:
Theoretical Economics Letters,
Vol.8 No.15,
December
7,
2018
ABSTRACT: This research work is focused on effect of business
group affiliation on firm with different shades of FDI capital such as
technology, capital and competitiveness defined on the basis of FDI policy
tools designed by Indian policy makers. The analysis reveals negative effect of
business group affiliation on excess value created by firm using
competitiveness shaded FDI capital. This empirical evidence supports that
tunneling effect of business group affiliation is highly significant in a firm
with competitiveness shaded FDI capital. Once, profitability, asset utilization
and growth opportunity is controlled, the tunneling effect of business group
affiliation becomes highly significant in firm irrespective of the shades of
FDI capital. This is in support of study reported by Bertrand et al. (2002) claiming that tunneling
effect is part of non-operating profit. There is strong evidence that FDI
investors’ fund is expropriated by domestic business group when host economy
has sufficient capital and technology and foreign investor is intending to
create excess value on account of their higher efficiency.