THE EFFECTS OF FOREIGN OWNERSHIP AND SIZE ON FIRM PERFORMANCE: EVIDENCE FROM PANEL DATA ANALYSIS OF ISE LISTED FIRMS
Languages of publication
The role of foreign direct investment (FDI) in economic development and its contribution to the performance of domestic firms has motivated researchers to initiate studies for analyzing the impact of FDI on economic performance. The literature on the role of FDI mainly focuses on the production, employment, economic growth, balance of payments, knowledge spillovers and general welfare of the recipient country. However, economic growth is triggered by firms that are able to transform these positive impacts of FDI into improved firm performance. Nevertheless, the impact of FDI on firm performance has not been investigated at firm level widely. The aim of this paper is to examine whether FDI and investment incentives can be justified on the basis of academic research regarding their firm performance effect. A panel data of non-financial firms listed at Istanbul Stock Exchange (ISE) for the period 1998-2007 is used to model firm performance in terms of return on assets and sales as a dynamic process. This paper contributes to the existing literature by providing firm level empirical evidence on the impact of investment incentives and foreign ownership together with size on firm performance. Our results suggest that large and foreign ISE listed firms perform better than domestic firms. Moreover, investment incentives, as both determinants of FDI decisions and as their stand alone positive impact on firm performance, can create the economic environment in which FDI inflows can be transformed into positive returns both for recipients and investors.
- Aitken, B.J., & Harrison, A.E. (1999). Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela. The American Economic Review, 89(3), 605–618.
- Akimova, I., & Schwödiauer, G. (2004). Ownership Structure, Corporate Governance and Enterprise Performance: Empirical Results from Ukraine. International Advance in Economic Research, 10(1), 28–42.
- Arellano, M., & Bond, S. (1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations. Review of Economic Studies, 58, 277–297.
- Arellano, M., & Bover, O. (1995). Another Look at the Instrumental Variables Estimation of Error Components Models. Journal of Econometrics, 68, 29–51.
- Arnold, J.M., & Javorcik, B.S. (2009). Gifted Kids or Pushy Parents? Foreign Direct Investment and Plant Productivity in Indonesia. Journal of International Economics, 79, 42–53.
- Aydın, N., Sayım, M., & Yalama, A. (2007). Foreign Ownership and Firm Performance: Evidence from Turkey. International Research Journal of Finance and Economics, 11, 103–111.
- Barbosa, N., & Louri, H. (2005). Corporate Performance: Does Ownership Matter? A Comparison of Foreign- and Domestic-Owned Firms in Greece and Portugal. Review of Industrial Organization, 27, 73–102.
- Blomström, M. (1986). Foreign Investment and Productive Efficiency: The Case of Mexico. Journal of Industrial Economics, 15, 97–110.
- Blomström, M., & Kokko, A. (1998). Multinational Corporations and Spillovers. Journal of Economic Surveys, 12(2), 1–31.
- Blomström, M., & Kokko, A. (2003). The Economics of Foreign Direct Investment Incentives. NBER, Working Paper No. 9489.
- Blomström, M., & Sjoholm, F. (1999). Technology Transfer and Spillovers: Does Local Participation with Multinationals Matter?. European Economic Review, 43, 915–923.
- Blundell, R., & Bond, S. (1998). Initial Conditions and Moment Restrictions in Dynamic Panel Data Models, Journal of Econometrics, 78(1), 115–143.
- Chari, A., Chen, W., & Dominguez, K. (2009). Foreign Ownership and Firm Performance: Emerging-Market Acquisitions in the United States. NBER, Working Paper No. 14786.
- Demirbag, M., Tatoglu, E., & Glaister, K.W. (2007). Factors Influencing Perceptions of Performance: The Case of Western FDI in an Emerging Market. International Business Review, 16, 310–336.
- Douma, S., George, R., & Kabir, R. (2006). Foreign and Domestic Ownership, Business Groups, and Firm Performance: Evidence from a Large Emerging Market. Strategic Management Journal, 27(7), 637–657.
- Driffield, N., & Love, J.H. (2007). Linking FDI Motivation and Host Economy Productivity Effects: Conceptual and Empirical Analysis. Journal of International Business Studies, 38, 460–473.
- Erdal, F., & Tatoglu, E. (2002). Locational Determinants of Foreign Direct Investment in an Emerging Market Economy: Evidence from Turkey. Multinational Business Review, 10(1), 1–7.
- Erdilek, A. (1986). Turkey’s New Open-door Policy of Direct Foreign Investment: A Critical Analysis of Problems and Prospects. METU Studies in Development, 13, 171–191.
- Erdilek, A. (2003). A Comparative Analysis of Inward and Outward FDI in Turkey. Transnational Corporations, 12(3), 79–105.
- Globerman, S., Ries, J., & Vertinsky, I. (1994). The Economic Performance of Foreign Affiliates in Canada. Canadian Journal of Economics, 27, 143–156.
- Gunduz, L., & Tatoglu, E. (2003). A Comparison of the Financial Characteristics of Group Affiliated and Independent Firms in Turkey. European Business Review, 15(1), 48–54.
- Hallward-Driemeier, M., Iarossi, G., & Sokoloff, K. (2002). Exports and Manufacturing Productivity in East Asia: a Comparative Analysis with Firm-level Data. NBER, Working Paper No. 8894.
- Haskel, J.E., Pereira, S.C., & Slaughter, M.J. (2007). Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?. The Review of Economics and Statistics, 89(3), 482–496.
- Javorcik, B.S. (2004). Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers through Backward Linkages. The American Economic Review, 94(3), 605–627.
- Kathuria, V. (2002). Liberalisation, FDI and Productivity Spillovers- An Analysis of Indian Manufacturing Firms. Oxford Economic Papers, 54, 688–718.
- Keller, W., & Yeaple, S.R. (2009). Multinational Enterprises, International Trade, and Productivity Growth: Firm Level Evidence from the United States. The Review of Economics and Statistics, 91(4), 821–831.
- Kimura, F., & Kiyota, K. (2007). Foreign-owned versus Domestically-owned Firms: Economic Performance in Japan. Review of Development Economics, 11(1), 31–48.
- Konings, J. (2001). The Effects of Direct Foreign Investment on Domestic Firms: Evidence from Firm Level Panel Data in Emerging Economies. Economics of Transition, 9, 619–633.
- Lu, J.W., & Beamish, P.W. (2006). SME Internationalization and Performance: Growth vs. Profitability. Journal of International Entrepreneur, 4, 27–48.
- Öniş, Z. (1994). Liberalization, Transnational Corporations and Foreign Direct Investment in Turkey: The Experience of the 1980s. In F. Şenses (eds.), Recent Industrialization Experience of Turkey in a Global Context (pp. 91–109). Westport, Connecticut: Greenwood.
- Roodman, D. (2006). How to do xtabond2: An Introduction to “Difference” and “System” GMM in Stata. Center for Global Development, Working Paper No. 103.
- Tatoglu, E., & Glaister, K.W. (1998). Performance of International Joint Ventures in Turkey: Perspectives of Western Firms and Turkish Firms. International Business Review, 7, 635–656.
- Taymaz, E., & Yılmaz, K. (2009). Foreign Direct Investment and Productivity Spillovers: Identifying Linkages through Product-based Measures, mimeo.
- Xu, D., Pan, Y., Wu, C., & Yim, B. (2006). Performance of Domestic and Foreign-invested Enterprises in China. Journal of World Business, 41, 261–274.
- UNCTAD (2007), World Investment Report, United Nations, New York and Geneva.
- YASED (2008). International Direct Investments Report, Retrieved April 18, 2010, from: http://yased.org.tr/webportal/English/Yayinlar/Pages/Rap
- Yaşar, M., & Paul, C.J.M. (2007a). International Linkages and Productivity at the Plant Level: Foreign Direct Investment, Exports, Imports and Licensing. Journal of International Economics, 71, 373–388.
- Yaşar, M., & Paul, C.J.M. (2007b). Firm Performance and Foreign Direct Investment: Evidence from Transition Economies. Economics Bulletin, 15(21), 1–11.
- Yılmaz, K. (2007). Türkiye için Doğrudan Yabancı Yatırım Stratejisi’ne Doğru, YASED.
Publication order reference