Multinational Business Finance 15th Global Edition by David K. Eiteman solution manual

e.   Direct ownership of a foreign, incorporated, subsidiary. If fully owned, the advantage is that the foreign operations may be fully integrated into the global activities of the parent firm, with products resold to other units in the global corporate family without questions as to fair transfer prices or too great specialization. (Example: the Ford transmission factory in Spain is of little use as a self-standing operation; it depends on its integration into Ford’s European operations.) The disadvantage is that the firm may come to be identified as a “foreign exploiter” because politicians find it advantageous to attack foreign-owned businesses
15. Financial Globalization. Explain the twin agency problems. How do the twin agency problems limit financial globalization?
Despite the reduction in barriers to global investment activity, the twin agency problems have limited the impact of financial globalization. The twin agency problems arise because corporate insiders and the rulers of some nations may pursue their own interests at the expense of outside investors. When these twin agency problems escalate, corporate insiders tend to retain substantial equity (either directly if domestic laws allow or indirectly through collusion with other owners). This could not only lead to capital flight but also to financial crises. This limits economic growth, financial development, and the ability of a country to take advantage of financial globalization.