The effects of legal protections and control-ownership divergences on investor perceptions of foreign earnings

Chen Lung Chin, Yu Ju Chen, Gary Kleinman, Picheng Lee

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

Purpose – The purpose of this paper is to investigate the impact of corporate internationalization, governance structures, and legal protections on the foreign earnings response coefficient (FERC). The FERC is a measure of the value-relevance of foreign earnings. Design/methodology/approach – Data were collected on 3,653 Taiwanese firms which had overseas investments. The authors examined the impact of the site of their overseas investments and the nature of the legal code of the investee country on the investor perceptions of firms' reported foreign and domestically-generated earnings. Also examined was the impact of corporate governance arrangements (e.g. the difference between the owners' cash flow and voting rights) on the same components of the firms' earnings. Findings – The empirical findings suggest that an aggressive internationalization strategy (foreign direct investment) has positive effects on the value relevance of foreign earnings, but that this strategy is impacted by the firm's own corporate governance arrangements and the target of its overseas investment efforts. While foreign investments bring about growth and profits, they expose the investors to the risk of expropriation by investee countries and corporate insiders. Originality/value – The importance of the findings is that they should help regulatory agencies – and firms themselves – to better understand factors that can promote the global expansion of domestic enterprises.

Original languageEnglish
Pages (from-to)164-187
Number of pages24
JournalJournal of Financial Regulation and Compliance
Volume21
Issue number2
DOIs
StatePublished - 3 May 2013

Fingerprint

Divergence
Investors
Legal protection
Ownership and control
Value relevance
Earnings response coefficients
Corporate governance
Cash flow rights
Internationalization
Internationalization strategy
Factors
Governance structure
Foreign direct investment
Design methodology
Owners
Voting rights
Profit
Foreign investment
Expropriation
Insider

Keywords

  • Corporate governance
  • International business
  • International investments
  • Internationalization
  • Investor legal protection
  • Taiwan
  • Value relevance of foreign earnings

Cite this

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title = "The effects of legal protections and control-ownership divergences on investor perceptions of foreign earnings",
abstract = "Purpose – The purpose of this paper is to investigate the impact of corporate internationalization, governance structures, and legal protections on the foreign earnings response coefficient (FERC). The FERC is a measure of the value-relevance of foreign earnings. Design/methodology/approach – Data were collected on 3,653 Taiwanese firms which had overseas investments. The authors examined the impact of the site of their overseas investments and the nature of the legal code of the investee country on the investor perceptions of firms' reported foreign and domestically-generated earnings. Also examined was the impact of corporate governance arrangements (e.g. the difference between the owners' cash flow and voting rights) on the same components of the firms' earnings. Findings – The empirical findings suggest that an aggressive internationalization strategy (foreign direct investment) has positive effects on the value relevance of foreign earnings, but that this strategy is impacted by the firm's own corporate governance arrangements and the target of its overseas investment efforts. While foreign investments bring about growth and profits, they expose the investors to the risk of expropriation by investee countries and corporate insiders. Originality/value – The importance of the findings is that they should help regulatory agencies – and firms themselves – to better understand factors that can promote the global expansion of domestic enterprises.",
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The effects of legal protections and control-ownership divergences on investor perceptions of foreign earnings. / Chin, Chen Lung; Chen, Yu Ju; Kleinman, Gary; Lee, Picheng.

In: Journal of Financial Regulation and Compliance, Vol. 21, No. 2, 03.05.2013, p. 164-187.

Research output: Contribution to journalArticle

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