CENTER FOR INTERNATIONAL BUSINESS EDUCATION AND RESEARCH
(GT CIBER)
WORKING PAPER SERIES
96016

International ownership Structure and the Firm Value

by Cheol S. Eun & S. Janakiramanan

Abstract

In this paper, we investigate the effect of international ownership structure (IOS) on the firm value and shareholder welfare in a world in which countries regualte corporate IOS to maintain local control. The key findings include : First, the value of the firm is a non-linear function of its IOS; as the foreign shareholders' fractional ownership rises, the firm value increases but at a decreasing rate, asymptoting to the perfect market value. Second, despite the regualted IOS, the invariance theorem a la Modigliani-Miller may hold locally, depending on the ability of investors to mimic the foreign market portfolio using 'home-made' substitutes. Third, a change in the firm's international ownership structure affects the welfare of current domestic and foreign shareholders in the opposite direction, potentially causing their interests to collide.