The relative performance of foreign-owned subsidiaries and domestic companies

Abstract

ABSTRACTThe paper investigates the financial performance of the largest firms in Romania, by comparing foreign-owned subsidiaries (FOS) and domestic companies (DCs) over a decade. As such, the paper contributes to the literature on foreign direct investment (FDI) in transition economies, focusing on a country where few such studies have been conducted previously. Whereas most microeconomic research about Central and Eastern European (CEE) economies is concerned with the effects of FDI, this paper fills a gap in the literature by comparing the evolution of FOS and DCs performance during 2003–2012. This matter is approached in a novel methodological way, by applying the multiple correspondence analysis to explain the complex relationships between ownership, modes of entry and performance, as reflected in turnover and profit margins. One result is that FOS replaced DCs in top national positions, when taking into account size and turnover. However, although FDI via acquisitions financially outperformed DCs, the latter did better than greenfield FDI after the global economic crisis. Of all the factors analysed, the sector of activity resulted as having by far the most important influence on financial performance. The results have implications for policymakers who design FDI programmes for economic development.