Foreign Ownership, Royalty Payments and Expropriation of Minority Shareholders: Evidence from India

Jadhav, Aditya Mohan and Prasad, Durga and Srikanth, P (2015) Foreign Ownership, Royalty Payments and Expropriation of Minority Shareholders: Evidence from India. TAPMI, Manipal.

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Abstract

This paper examines the expropriation of minority shareholders invested in listed subsidiaries of foreign firms by excess royalty payments by the subsidiaries to their parent multinational companies (MNC). Using the data of 4673 Indian firms over a period of 12 years, we examine the impact of royalty payment on firm performance viz., asset turnover ratio, net profit margin and return on capital employed to investigate the same. We document that royalty payments made by foreign subsidiary firms is higher than the royalty payments made by Indian firms. We also report that royalty payments have a negative impact on firm performance viz., asset turnover, net profit margin and return on capital employed. We also report that the negative impact of royalty payment on firm performance is more severe in case of foreign subsidiary firms in comparison to domestic firms. The results summarized above clearly show that royalty payment impacts firm performance negatively. The reduced net earnings cash-flow to the parent MNC is off-set by higher royalty payment. But the minority shareholders are left with reduced earnings indicating expropriation through royalty payments.

Item Type:	TAPMI Working Papers
Uncontrolled Keywords:	Royalty payments, foreign subsidiaries, shareholder expropriation, emerging markets
Subjects:	Finance Finance > Financial Management/Corporate Finance
Divisions:	Finance and Strategy
Depositing User:	Ms. Vanitha K
Date Deposited:	14 Nov 2018 07:03
Last Modified:	14 Nov 2018 07:03
URI:	http://tapmi.informaticsglobal.com/id/eprint/256

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