FDI and Corporate Governance

Abstract

For the past decade, mergers and acquisitions (M&A) have been the driving force behind the rapid increase in global foreign direct investment (FDI) flows. Those economies wishing to maintain their 'fair share' of global FDI are naturally interested in those factors that either encourage or inhibit FDI that occurs in this form. This paper suggests that corporate governance practices have a major influence not only in attracting FDI by way of M&A but also in ensuring that the FDI attracted has the best chance of making a positive contribution to economic development goals. The paper is structured as follows. First, I offer some background information on M&A's, their role in the East Asian region and their costs and benefits. I then turn to investors' perceptions of corporate governance practices in the region. I follow this with the main argument of the paper. It is that reforms in corporate governance practices will be necessary to take full advantage of FDI that occurs through merger and acquisition. The paper concludes with some suggestions for corporate governance reform that may assist in ensuring that FDI in this form is not only attracted but has reasonable prospects of being beneficial to both the acquiring and target firms.