Foreign Direct Investors as Change Agents

Institutional theory suggests that informal institutions effectively constrain human behavior. Culturally embedded norms and values align corporate governance with socially acceptable outcomes. We argue that foreign direct investors can act as agents of change in corporate governance. Investigating changes in ownership and control of Swedish firms, we find that foreign direct investors’ participation in conjunction with a reduction of control by the largest domestic shareholder improves firm performance through more efficient capital utilization and labor productivity as firms move away from a Swedish stakeholder orientation toward an Anglo-American shareholder wealth maximization focus.