Direct investment is a category of cross-border investment made by a resident in one economy (the direct investor or parent) with the objective of establishing a lasting interest in an enterprise (the direct investment enterprise or affiliate) that is resident in an economy other than that of the direct investor. Direct investment, more commonly referred to as foreign direct investment (FDI). Direct investment provides capital funding in exchange for an equity interest without the purchase of regular shares of a company's stock. The purpose of a foreign direct investment (FDI) is to gain an equity interest sufficient to provide control of a company. In some instances, it involves a company in one country opening its own business operations in another country, while in other cases it involves acquiring control of existing assets of a business already operating in the foreign country. A direct investment can involve gaining a majority interest in a company or a minority interest large enough to provide the investor with effective control of the company. Equity includes common and preferred shares (exclusive of non-participating preference shares which should be included under debt), reserves, capital contributions and reinvestment of earnings. Dividends, distributed branch earnings, reinvested earnings and undistributed branch earnings are components of FDI income on equity. The aim of this paper is to evaluate common principles of foreign direct investment. FDI financial transactions may be negative for three reasons. First, if there is disinvestment in assets—that is, the direct investor sells its interest in a direct investment enterprise to a third party or back to the direct investment enterprise. Second, if the parent borrowed money from its affiliate or if the affiliate paid off a loan from its direct investor. Third, if reinvested earnings are negative. Reinvested earnings are negative if the affiliate loses money or if the dividends paid out to the direct investor are greater than the income recorded in that period. Control can come from sources other than an investment of capital, though the control of such things as technology are merely critical inputs. In fact, foreign direct investment is frequently not a simple monetary transfer of ownership or controlling interest but also involves complementary factors, such as organizational and management systems or technology.
Anahtar Kelimeler: FDI, Equity, Share