Foreign Investment and Firm Level Operating Performance: Case of Reliance and Tata

Abstract

Operating performance of a firm is dependent on many factors of which foreign investment today is considered a highly crucial one. This is more so in a developing open economy like India where domestic capital base for targeted growth is relatively weak. Evidences of relationship between foreign investment and firm level performance and the degree of influence of the former on the later have been argued through many research studies so far. However, there still appears a gap-filling scope with special reference to the impact of foreign investment on the operating performance at the firm level in India. The present paper addresses this important issue with a view to providing further empirical evidence. Taking the case of two major Indian companies from the BSE-30 group i.e., Reliance Industries Ltd. and Tata Steel Ltd., the paper evaluates the magnitude of influence of inward foreign investment on their operating performance. Using multiple regression technique the paper first estimates the relative effect of foreign investment on both the companies’ operating performance and then attempts to examine whether the presence of foreign investment strengthens the operating performance of said firms. It is found that the influence of foreign investment has been quite significant on operating performance in both the firms.