International Ownership and Firm Performance in Africa

Abstract

Empirical evidence suggests that international ownership of local firms supports firm performance and growth through various channels such as financing, technology transfer, and improved access to international markets. The relationship between firm performance and international ownership has been well explored for firms in developed economies but this is not the case for firms in developing economies, especially in Africa. Largely due to lack of relevant cross-country financial data, existing literature on African firms has presented survey-based evidence on firm performance while evidence based on detailed financial information remains lacking. The present paper aims at filling this research gap. We identify African firms operating in the formal sector and examine the impact of ownership structure on firm performance. We use cross-sectional financial data covering about 22,000 companies in 51 African countries for the years 2006 to 2014. Our results reveal a clear ownership-specific pattern. More specifically, international ownership is found to have a significant positive association with firm performance.