Essays on FDI, Oligarchs, and Firm Performance



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This dissertation presents studies of the interaction of foreign direct investment and firm performance with specific focus on foreign ownership structured via offshore jurisdictions (tax havens), its determinants and consequences for firm productivity. In the first essay, Employment and Productivity Effects of Tax Haven FDI, I use longitudinal data on more than 300,000 Ukrainian firms over period of 1999-2013 representing more than 10,000 acquisitions by foreign investors to study the extent to which tax haven ownership affects employment and firm productivity in the post-acquisition period. Controlling for a rich set of fixed effects and employing propensity score matching, I find that firms acquired by foreign investors experience boost in employment of 8-30%, labor productivity of 10-16% and total factor productivity of 9-11% relative to firms that stay domestic. The gap is much lower for firms acquired by investors from tax haven countries: focusing on the most conservative specification that controls for firm specific fixed effects and growth trajectories, my results suggest that employment of tax haven acquired firms does not change in the post-acquisition period, while productivity improvement ranges from 4 to 5 percent. In the second essay, Preventing Predation: Oligarchs, Obfuscation, and Political Connections (co-authored paper with John S. Earle, Scott Gehlbach, and Anton Shirikov), we examine the decision of wealthy business owners to protect their holdings from expropriation and arbitrary taxation through proxies, shell companies, and offshore firms. Our theoretical framework emphasizes the role of political connections in decisions to obfuscate. Linking information from investigative journalists on Ukrainian oligarchs with firm-level administrative data on formal ownership ties, we observe obfuscation among more than two-thirds of oligarch-controlled firms, but such behavior is much less common for connected oligarchs. Further exploiting the abrupt shock to political connections that accompanied the Orange Revolution, we find a sharp rise in obfuscation among previously connected oligarchs. In the third essay, Ownership Obfuscation: Causes and Consequences I empirically examine the determinants of ownership obfuscation, and the consequences for firm-level outcomes. To study these questions, I exploit unusual data on control and ownership of oligarch-controlled firms in Ukraine and link it to balance sheets for all Ukrainian firms between 1999 and 2007. My results suggest that privatized, younger, more volatile, and oligarch-controlled firms tend to obfuscate more as well as those operating in the expropriation susceptible industries. Political connections are strong predictor of ownership obfuscation. Minimum efficient size of the firm has positive effect on obfuscation among oligarch-controlled firms suggesting that firms that have more to hide, obfuscate more. However, the effect is negative among all joint-stock companies suggesting that in order to raise the capital, the company should be more transparent in order to attract more investors. I also find some support for the amenity potential hypothesis suggested in Demsetz and Lehn (1985). My results provide limited evidence that obfuscation harms firm performance.