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The effect of the degree of foreign ownership on firms' performance

Author

Listed:
  • Hintošová Aneta Bobenič

    (University of Economics in Bratislava, Faculty of Business Economics with seat in Košice, Department of Management, Tajovského 13, 041 30 Košice, Slovakia.)

  • Kubíková Zuzana

    (University of Economics in Bratislava, Faculty of Business Economics with seat in Košice, Department of Management, Tajovského 13, 041 30 Košice, Slovakia.)

Abstract

A large number of studies have compared the performance of foreign-owned and domestic firms. However, only a limited number of studies have investigated the effect of the degree of foreign ownership on a firm's performance. We attempt to fill this gap in the literature by conducting research that distinguishes not only between domestic and foreign-owned firms, but also between wholly and partly foreign-owned firms. We also examine the possible non-linearity of the performance-ownership relationship. We divide the firms in our study into three groups by their ownership - domestic, foreign, and joint ventures. We use a regression analysis to explore whether foreign ownership influences the firms' performance, measured by several variables such as profitability, innovation performance (measured by gross expenditures on research and development activities), numbers of employees involved in research and development, production, value added, leverage and net working capital intensity. The results of our research indicate that there is a statistically significant difference in firms' performance as a result of foreign ownership in all variables except the number of research and development employees and leverage. Moreover, we show that foreign ownership and performance are linked by an inverted U-shaped relationship. A firm’s performance increases with greater foreign ownership up to the range of 61-65 %, and declines thereafter.

Suggested Citation

  • Hintošová Aneta Bobenič & Kubíková Zuzana, 2016. "The effect of the degree of foreign ownership on firms' performance," Review of Economic Perspectives, Sciendo, vol. 16(1), pages 29-44, March.
    • Handle: RePEc:vrs:reoecp:v:16:y:2016:i:1:p:29-44:n:3
    DOI: 10.1515/revecp-2016-0003
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    Citations

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    Cited by:

    1. Luís Pacheco & Carla Lobo & Isabel Maldonado, 2022. "The Presence of Foreign Capital and the Internationalization of Portuguese Industrial SMEs," JRFM, MDPI, vol. 15(2), pages 1-18, February.
    2. Mina Baliamoune‐Lutz & Mohamed A. K. Basuony & Stefan H. H. Lutz & Ehab K. A. Mohamed, 2024. "International ownership and SMEs in Middle Eastern and African economies," African Development Review, African Development Bank, vol. 36(2), pages 279-291, June.

    More about this item

    Keywords

    performance; foreign ownership; foreign investor; joint ventures; Slovak republic;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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