Theory & Legal Framework
Drawing from international law principles and joint asset ownership dynamics with foreign entities, the authors propose a novel explanation for how domestic firms navigate challenging property rights environments.
The core insight emerges from comparing investment agreements—designed specifically for foreign-owned assets—which are absent for purely domestic holdings. This legal distinction creates an unexpected rationale: domestic companies can circumvent home-country enforcement limitations by strategically aligning with international capital providers.
Strategic Adaptation
This research reveals a counterintuitive adaptation strategy among firms operating in property rights-insecure environments:
- Investment activities are significantly more common through cross-border mergers and acquisitions than direct equity holdings
- International financial relationships (bond/equity deals or M&A) flourish where domestic legal protections for business assets appear tenuous
- These patterns suggest a political economy logic behind fragmented ownership across national borders, predicated on circumventing home-country enforcement risks
Empirical Evidence
Analysis of firm activities in countries with active US investment agreements demonstrates that international financial relationships are significantly more prevalent where domestic property rights protections are weakest.
This finding offers substantial implications: it provides an institutional explanation for observed cross-border capital flows and suggests unexpected consequences of international legal frameworks—namely, how they shape domestic governance strategies concerning business assets. The results highlight political science's growing relevance to understanding the complex interplay between global finance and national regulatory landscapes.
