Minority rules: State ownership and foreign direct investment risk mitigation strategy

Author
Barclay E. James, Paul M. Vaaler.
Content Type
Policy Brief
Institution
Columbia Center on Sustainable Investment
Abstract
Business researchers, executives and regulators may assume that state ownership in firms raises risk for private co-investors. After all, private investors are seeking profits while states are seeking welfare. Giving them both equity only confuses the aims of an investment project, complicates the job of investment project managers and raises the overall risk of investment project failure. But these assumptions do not fit the evidence as demonstrated by a well-known risk indicator observable in hundreds of investment projects located in dozens o f countries: in countries where initial investment terms are more vulnerable to renegotiation by host country governments, we found that "minority rules" apply w hereby a non-controlling, but still substantial equity investment by a host country government can play a risk-mitigating role.
Topic
Markets, Treaties and Agreements, Foreign Direct Investment, Governance, Reform
Political Geography
Ethiopia