The short- and long-run effects of foreign investments on firm performance: Evidence from Asia Pacific

Abstract

We study the implications of foreign investments for firm performance. Using a panel sample of publicly listed non-financial firms in 17 countries in Asia Pacific from 1990 to 2016, we examine whether firms with larger foreign investments perform better than those with smaller foreign investments and whether cost efficiency and revenue growth mediate the effect of foreign investments on firm performance. The IV-2SLS results show that firms with larger foreign investments tend to have poorer firm performance than firms with smaller foreign investments at both short and long horizons. The results further show that foreign investments are negatively associated with revenue growth and cost efficiency. We find no evidence that cost efficiency mediates the effect of foreign investments on firm performance; however, our findings provide some evidence that revenue growth partially mediates the relationship between foreign investments and firm performance.