Does Foreign Ownership Explain Company Export and Innovation Decisions? Evidence from Japan

We employ a comprehensive database of Japanese manufacturing firms, covering up to 220,000 firm-year observations, to examine the role that ownership structure plays in explaining differences in export and innovation decisions of firms. Firms with higher foreign ownership are more export-oriented and engage more in innovation. This result holds controlling for differences in incentive structures (the use of stock options, which themselves are also associated with more export and innovation activities) and is robust to the use of an instrument exploiting peer effects with regard to foreign ownership. We also show that pre-World War II differences in cognitive skills and non-cognitive characteristics (attitudes) still explain modern-day, cross-prefecture differences in firm choices. Overall, our results suggest that both firm-internal corporate governance and the employee pool from which a company can draw upon can play an important role for the export and innovation activity of firms.