Foreign Equity Participation Research Articles

Horizontal and vertical foreign direct investment linkages, absorptive capacity and domestic investment: evidence from Indonesian plant-level data

PurposeThis study examines the effect of horizontal and vertical foreign direct investment (FDI) linkages on the investment decisions of domestic plants. It explores this link for plants in a developing country, where the dynamics of FDI spillovers on domestic investment choices are distinct from those in developed countries. It also adds to the literature by examining the role the absorptive capacity of plants plays in this nexus, enriching our understanding of the interaction between FDI and the investment choices of domestic plants and providing insights for policymakers and managers seeking to maximize the positive effects of FDI spillovers.Design/methodology/approachThis study specifies the dynamic investment equation using the Euler and Q models. This equation is estimated using the first-difference and system generalized method of moments GMM estimators, which allow us to address persistency, endogeneity and unobserved plant-specific effects. FDI exposure proxy, calculated by weighing the FDI engagement variable by firm size, captures the strength of foreign equity participation in an industry and time. Input–output (IO) tables are used to calculate the proxies for horizontal and vertical (backward and forward) FDI. Total factor productivity is calculated using a method advocated by Olley and Pakes (1996) that allows us to control for selection and simultaneity.FindingsWe find that FDI inflows into both the domestic plants’ own industry and the input-supplying industry significantly boost the capital accumulation of the average domestic plants. Differentiating plants based on their absorptive capacities reveals that the presence of foreign firms significantly increases capital deepening for domestic plants with high absorptive capacity within their own industry (horizontal linkage) and in industries that supply inputs to the FDI-exposed industry (backward linkage). However, it leads to a decrease in capital deepening for high absorptive capacity domestic plants in industries using inputs produced by the industry exposed to FDI (forward linkage).Research limitations/implicationsThese findings have implications for policymakers and managers who aim to design incentives to maximize the positive spillover effect of horizontal and vertical FDI linkages on the capital deepening of domestic plants. Exploring additional mechanisms that could play a role in this nexus, separately for plants in different industries (such as the industries in which the country has a comparative advantage), may be fruitful.Originality/valueTo our knowledge, the relationship between the investment behavior of the domestic plants and FDI linkages has not been examined for a developing country. It is useful to explore this link in developing countries, as the investment choices of plants in these nations may be impacted differently by FDI spillovers than those in advanced nations. This study further contributes to the literature by investigating whether the plants’ absorptive capacity affects the nexus between FDI linkages and investment decisions of the domestic plants. The findings are valuable for policymakers and managers who aim to increase plants’ capital accumulation in developing countries.

The impact of foreign participation on risk-taking in Chinese commercial banks: The co-governance role of equity checks and foreign supervision

This study examines how foreign equity participation affects the risk-taking of commercial banks using Chinese bank-level data from 2012 to 2020. The results indicate that foreign equity participation significantly reduces bank risk, and there is a U-shaped relationship between the foreign shareholding ratio and bank risk. Mechanism analysis reveals that augmenting foreign ownership strengthens shareholder equilibrium and boosts the presence of foreign directors. This structure enhances dual governance mechanisms, lowering the risk in banking activities. Considering that confounding factors affecting mediator and dependent variables can cause bias in coefficient estimation, we used machine learning methods to determine the best predictive factors affecting bank risk-taking. We indirectly verified the theoretically driven empirical model by evaluating more explanatory variables and selecting subsets of explanatory variables. In addition, we find that governance enhancements are particularly pronounced in Chinese banks, characterized by smaller scale and less income diversification. Additionally, foreign ownership significantly impacts banks' market risk more than credit and operational risks. Our results imply that China's financial regulatory authorities need to shift the focus of supervision to examining foreign shareholding ratio and corporate governance ability.

Do foreign investors make firms more transparent? Evidence from Korea

In this study, we investigate whether foreign equity participation enhances the level of transparency in Korean listed firms’ accounting information. Using panel data on the Korean listed firms during the 1999–2019 period, we find that foreign ownership has a positive effect on the accounting transparency of firms. This suggests that foreign investors effectively monitor the earnings management activities of a firm and contribute to increasing the quality of accounting information. In addition, this positive impact of foreign equity ownership is more pronounced in non-chaebol firms than in chaebols. We further show that foreign investors reinforce the effect of changes in accounting systems on the transparency of Korean firms. Finally, firms with enhanced transparency by foreign investors perform better in the future. Overall, our study highlights the importance of foreign investors for enhancing accounting transparency in the Korean stock market. (JEL F21, F65, G15, G30, M40)

Strategic Management: Factors Influencing (De) Centralization in Multinational Corporations Operating in Slovakia

In the field of (de)centralization of companies, there is a need to explore the factors that influence decision-making processes and organizational structures. However, limited research has focused specifically on the Slovakian business environment, warranting further investigation. This article aims to examine the relationships between ownership structure, the establishment of direct foreign equity participation (DFEP) and company size in relation to aspects of (de)centralization in a select group of companies in Slovakia. The aim is to highlight the importance of the (de)centralization problem. The researchers employed statistical methods to analyse the data, including the nonparametric Kruskal‒Wallis test and post hoc analysis using the pairwise comparison post hoc test. These tests were applied to identify statistically significant differences between the chosen factors and individual variables relating to (de)centralization. The findings indicate that the establishment of DFEP significantly influences (de)centralization in areas such as the purchase of materials/goods, production/planning/provision, marketing planning, sales to the end customer and the filling of managerial positions. Ownership structure was also found to significantly influence (de)centralization with regard to the purchase of materials/goods, production/planning/provision and marketing planning. Similarly, company size seems to play a role in strategic management and production/planning/provision decisions. This study contributes to the existing body of knowledge by offering insights into the specific context of (de)centralization in the Slovakian business environment. The use of statistical analysis methods enhances the rigor of the findings. The findings provide practical implications for decision-making processes, resource allocation strategies and organizational design. This research fills a gap in the literature by focusing on the relationships between ownership structure, the establishment of DFEP and company size within the context of (de)centralization. This study serves as a foundation for future research in this field, guiding further exploration and understanding of the factors affecting (de)centralization in Slovakia.

Liberalisation and Technological Accumulation Strategy in Industries from Developing Economies: An Analysis of Indian Capital Goods Manufacturing Firms

Technological accumulation is a complex process of correct mix of indigenous and/or imported technology, mainly for the firms belonging to developing economies after opening their economies. To understand these issues, the case of Indian capital goods industry is taken for the years 1994–1995 to 2015–2016. It was found that only 39% of the firms belonging to Indian capital goods sector are technologically active, that is, resorting to either embodied or disembodied technology acquisition. Multinomial logit model is estimated to find the impact of various variables in determining the strategy of technology accumulation. The factors such as age, size, technology spillovers and outward foreign direct investment were found to have a positive impact on the firms to resort to ‘indigenous R&D only’ as a strategy of technology accumulation. While ‘disembodied technology import only’ is influenced by factors like embodied and disembodied technology imports. However, strategy ‘both indigenous R&D and disembodied technology import’ is found to be influenced by foreign equity participation, mergers and acquisitions.

Does Foreign Institutional Equity Participation Instigate Sustainable Corporate Investment Efficiency? Evidence from Emerging Economies

This study examines the impact of overall foreign institutional equity participation and its two types—foreign institutional pressure-resistant and pressure-sensitive—on firm sustainable investment efficiency for non-financial listed domestic firms of three emerging economies over the period of 2009–2018, using an unbalanced panel of 733 firms with 4468 firm-year observations. It also investigates the impact of varying levels of foreign equity participation on investment efficiency. We used the regression estimation technique with robust standard errors clustered at the firm level. We also used the second-stage instrumental variable (IV) method to control potential endogeneity. Empirical findings reveal that overall foreign institutional equity participation and foreign institutional pressure-resistant ownership have a positive and significant impact on corporate investment efficiency, whereas foreign institutional pressure-sensitive ownership has a positive but insignificant impact. When we divided the overall institutional foreign equity ownership and its two types into five levels, we found a positive and significant impact of overall foreign institutional ownership at all levels. The foreign institutional pressure-resistant ownership has a positive and significant impact on investment efficiency when it is greater than 10%. However, we found a weak relationship of foreign institutional pressure-sensitive equity ownership with investment efficiency at all varying levels of investments. These results are robust when we controlled for endogeneity. Our results have implications for policymakers, regulators, academicians, and potential foreign equity participants. These results can be generalized to those emerging economies that have the potentials for attracting foreign equity inflows.

Export Marketing Behaviour of Resource-Based Firms in Malaysia

This article is concerned with the export market strategy adapted by manufacturers-exporters in resource- based industries. The characteristics, export performance and marketing strengths of firms adapting a market concentration strategy versus firms adapting a market diversification strategy are investigated. The results show that firms adopting a diversification strategy are larger, have more export experience and higher percentage of foreign equity participation, and achieved better export performance compared to firms adapting a market concentration strategy. The former also exhibits greater commitment to exporting and are significantly different from the latter as regards to sources of marketing competitive strengths.

The Approach of SMEs to Using the Customer Databases and CRM: Empirical Study in the Slovak Republic

Sustainability of (small and medium-sized enterprises) SMEs in a globalized economy depends on several factors. According to available studies, effective Customer Relationship Management (CRM) is one of the factors affecting the competitiveness of SMEs in a positive way. This paper is focused on creating customer databases and on using the CRM strategy in SMEs in Slovakia. The aim of the paper is to cluster SMEs in Slovakia based on using customer databases and CRM and to identify differences in clusters according to the selected attributes. The outputs of the research focused on marketing communication and on creating the CRM strategy in Slovak enterprises are presented in the paper. Quantitative nonexperimental research using the questionnaires was conducted at the end of 2017 and throughout the year 2018. The research results are based on the responses of 1009 Slovak SMEs. Basic descriptive statistics, K-means cluster analysis, Analysis of variance (ANOVA), and Tukey HSD test were used to process the data. The resulting clusters show three typical attitudes of Slovak SMEs to creating the database, using the CRM and its effectiveness. Moreover, attitude to the application of ethical principles and holistic, integrated, and socially responsible marketing are presented in the clusters. Following the results, the fact that SMEs can be divided into the three following clusters with equal size can be stated: 1st cluster (in 92.2% and consisting of micro- and small-sized enterprises), customer databases are created for the purpose of marketing communication; 2nd cluster, consisting of the highest percentage of medium-sized enterprises and enterprises with foreign equity participation using the customer databases and CRM; and 3rd cluster characterized with smaller-sized enterprises with domestic property not focused on marketing communication and using the customer databases. The research results provide the basis for further research and support for small and medium-sized enterprises.

Foreign Investment Access and the Services Industry - Quantitative Policy Analysis for the Philippines

The report investigates the impact of regulatory barriers to FDI entry in services, with emphasis on ASEAN countries and the Philippines in particular. A structural gravity model quantifies how large the impact is of different types of regulatory barriers and other business costs on the volume of bilateral FDI entry. This analysis is data-intensive, using information on bilateral FDI patterns between 230 countries, based on a unique database that covers the period 2001 to 2016.The analysis has made it possible to distil a quantitative indicator for the relative costs of doing foreign direct investment in each country, an indicator that also varies over time. The indicator (inward multilateral resistance terms) compares the relative cost of doing FDI in a particular country, compared to all other countries. The world market for FDI funds is thus regarded as a closed system of communicating vessels: FDI policies in one place of the world affect the relative FDI attractiveness of all other countries. The size of the `ripples' that policy changes in any country send through the system depends on the size of its economy. For a particular country this provides exceptionally policy-relevant insights, because it allows to quantitatively evaluate how a particular policy affects inward FDI. And this can be done for any sub-sample of countries. In the case of the Philippines we have used the sample of ASEAN countries as the main reference group. Special attention is given to the role of statutory restrictions on foreign equity participation. The study investigates how current Philippine policies affect the magnitude and pattern of inward FDI stocks, and particular attention has been given to test the impact of the OECD FDI Restrictiveness. FDI in the Philippine services industry is underdeveloped, and the government considers to lift or alleviate existing restrictions on foreign equity participation in services industries. Some 60% of the incoming FDI flows now go to manufacturing, utilities, real estate and financial services industries, while hardly any FDI is attracted in the area of knowledge-intensive business services, transport, telecom, and primary industries. To attract more FDI in the future-important services industries, and move away from the current low-quality and vulnerable FDI jobs in global manufacturing value chains, a structural reform will be necessary, according to the Philippine Development Plan 2017-2022. We have used our quantitative results to design and quantify four reform scenarios and compare the results with the current Development Plan. Four potential reform packages were composed that differed along two dimensions: feasible versus ambitious, and short-term versus medium-term. The feasible policy targets were derived from the average performance of the nine other ASEAN countries. The ambitious policy targets were derived from the 'best practice' performer among the ASEAN countries, which differs by policy variable. The report concludes that the four FDI policy reform packages will not be enough to accomplish a structural change in the Philippine economy. Despite differentiated FDI growth rates per industry, it remains growth from very small initial FDI magnitudes in some industries. So, the overall changes will at best be modest in terms of shifts between industries. The bulk of new FDI jobs after the reform will most probably again be found in the traditional industries, with a particular strong role for GVC-oriented, low-wage manufacturing, while most new services jobs will probably be found mostly in business-support services like call centers. Overall, this study shows that the Philippines is in a good position to attract much more FDI than it is receiving nowadays, by feasible policies that require relatively small policy changes. Structural changes with a strong role for business and connectivity services will require a selective FDI acquisition policy.

Internationalization and performance of Indian born globals

PurposeThe purpose of this paper is threefold: first, to study internationalization-performance relationship of Indian born global (IBG) firms from multi-theoretical lens and establish the nature of this relationship; second, to highlight the role of foreign equity in moderating this relationship; and third, to establish the relevance of export intensity (EI) in determining these firms’ financial performance.Design/methodology/approachIn total, 411 IBG firms were identified based on born global (BG) definition and post-entry internationalization age requirement of this study. A balanced panel comprising of three years from 2010 to 2012 was analyzed using pooled panel and moderated multiple regression techniques.FindingsThe authors empirically prove that though EI and financial performance are positively related at overall level, this relationship is curvilinear in nature. In presence of foreign equity this positive curvilinear relationship is moderated to inverted-U shape.Research limitations/implicationsThe data sample is restricted to 411 private limited IBGs between the years 2009 and 2012. Implications of the findings are for policy makers and managers to sharpen their strategic foresight for exporting firms in its post-entry period. Also, investors can take level of internationalization into cognizance when investing in BG firms.Practical implicationsThe authors believe the results have practical implications for numerous parties, such as shareholders, institutional investors, scholars, policymakers and managers. It emboldens modern day managers to make further foray into internationalization due to its positive benefits on both productivity as well as profitability. Also, firms that look for foreign equity participation have to balance their strategies for greater scale and scope into international markets.Originality/valueThis is the first study that brings out the vital relationship aspect of EI with financial performance of IBG firms in their post-entry internationalization period, adding to international business literature in area of BG firms in their post-entry internationalization period.

信托公司股权结构对公司经营效率的影响—基于StoNED方法的实证分析

本文以委托代理理论为基础，从股权集中度和控股公司股权性质两方面入手分析股权结构对信托公司经营效率的影响。作者利用StoNED方法构造经营效率测度模型，基于2011~2015年信托公司的各项经营效率值以及股权结构变量的数据构造回归模型。研究发现，信托公司股权集中度与公司经营效率呈负相关，适度的股权集中度能够提高公司的经营效率。同时，股权集中度与关联交易呈正相关，适度的关联交易可以提高信托公司经营效率，但过度依赖关联交易会降低公司经营效率。从控股股东来看，金融机构控股的信托公司经营效率要高于产业集团及地方政府控股的信托公司。同时全国性金融机构控股的信托公司总体上经营效率要优于地方性金融机构控股的信托公司。中央产业集团控股的信托公司的经营效率要优于地方国企和民企控股的信托公司。外资参股对信托公司经营效率有一定的促进作用，但现阶段效果有限。 Based on the principal-agent theory, this paper analyzes the influence of the ownership concen-tration and holding company on the operating efficiency of trust companies. StoNED method is used to construct the management efficiency measurement model. Based on a sample of the trust companies from 2011 to 2015, this paper finds that the ownership concentration of the trust companies is negatively correlated with the companies’ operating efficiency, and moderate degree of ownership concentration can improve the operating efficiency. At the same time, the degree of ownership concentration is positively correlated with related party transactions (RPT). Related party transactions can improve the operating efficiency of trust companies, but over-reliance on related party transactions will reduce the operating efficiency. The operating efficiency of trust companies controlled by financial institutions is higher than trust companies controlled by industrial groups and local government. Compared to local financial institutions, national financial institutions have a better influence on operating efficiency. The operating efficiency of the trust companies controlled by central industrial group is better than those controlled by local state- owned enterprises and private enterprises. Foreign equity participation has little promoting effect on the operating efficiency of trust companies.

Effects of foreign equity participation on recipient firm exports

ABSTRACTWe offer new evidence on the role of foreign investment in domestic firms’ export decisions, both at intensive and extensive margins, using balance sheet data from a panel of manufacturing firms in India. In contrast to the existing literature, we analyse the effect of foreign investment at different levels, where the levels correspond to percentages of foreign equity. We use a selection procedure to control for the potential self-selection of firms into export participation. Though we do find that foreign investment increases a domestic firm’s likelihood to export, firms with majority foreign equity are found to serve domestic market more, once the self-selection is accounted for.

DID FOREIGN OWNERSHIP OF KOREAN CREDIT RATING AGENCIES IMPROVE THEIR RATINGS?

In this study, we investigate whether foreign equity participation fostered the growth of Korea's credit rating industry during the 2002–2013 period. We find that the rating quality deteriorated steadily even though the foreign ownership of Korea's credit rating agencies increased: Rating levels went up. Our analysis indicates that the Korean government's policy of gradually relaxing the restrictions on foreign ownership of local credit rating agencies was ineffectual. (JEL G24, F21, F65, D43)

The impact of FDI spillover effects on total factor productivity in the Chinese electronic industry: a panel data analysis

This paper empirically investigates the impact of inward foreign direct investment (FDI) on total factor productivity (TFP) growth in a developing country, China. Utilising an endogenous growth theoretic framework, we estimate a model using 1328 firm-level data and spanning the period 2003–2008. We find that the productivity gap constrains the impact of FDI on TFP, while foreign equity participation enhances technological transfer from foreign partners thus resulting in increased TFP in the Chinese electronic industry (CEI). Our findings demonstrate the need for greater investment in the human capital skill base, adopting flexible labour regulatory policies and encouraging investment in R&D as it enhances TFP in the CEI.

Effects of Foreign Equity Participation on Recipient Firm Exports Evidence from a Selection Model

Effects of Foreign Equity Participation on Recipient Firm Exports Evidence from a Selection Model

Assessing the Barriers to Trade in Services in South Asia

This study aims to assess barriers to service trade in the education, health, telecom, transport, travel and tourism, and banking and insurance sectors of selected South Asian economies such as India, Sri Lanka, Pakistan, Nepal and Bangladesh, including both trade and domestic restrictions. The analysis is focused on the computation of aggregate and modal service trade restrictiveness indices (STRIs) by sector, drawing on information gathered based on detailed questionnaires. The conclusions highlight that while significant regulatory reforms have taken place in certain (for example Telecom) service sectors over the last decade, a broad range of restrictions still remain. The most significant change in these service sectors has been the lifting or softening of the constraints imposed on foreign equity participation. Interestingly, the economies in terms of regulatory reforms are more open to non-South Asian economies and not so much open to each other. However, reforms have had varying degrees of impact on market structure depending on the country and the sector.

Does export-market participation improve productivity? Evidence from Spanish manufacturing firms

This article has a dual aim. First, it sets out to underline a learning-by-exporting effect in Spanish firms between 1991 and 2002. It further seeks to outline the conditions allowing firms to benefit from these spillover effects. Using a propensity score matching method, a group of firms having entered the export market (treatment group) is compared with a similar group of non-exporting firms (control group), and difference-in-differences regressions are carried out. The results show a cumulative productivity differential of 32% for the first four years of exporting, with continuous improvement in productivity. After three years of exporting, productivity gain is still approximately 10%. This study shows that increases in capacity utilisation and competitive pressure from foreign markets are insufficient to explain this causal link between exporting and total factor productivity (TFP). It is thus possible to deduce the presence of a learning-by-exporting effect, benefiting firms with sufficiently qualified employees and which are already engaged in international relations (due to foreign suppliers and/or foreign equity participation).

Foreign Direct Investment and Wages: Does the Level of Ownership Matter?

This study hypothesises that the level of foreign equity participation is a key determinant of the multinational wage premium. In particular, the breakdown of equity in a foreign investment project determines the extent to which a multinational parent company transfers proprietary assets to its affiliate, directly impacting worker productivity. Moreover, it indicates multinationals’ desire to restrict labour turnover and preserve human capital in light of organisational changes and training. Using detailed plant-level data from Turkey, the study finds strong support for these mechanisms. The results show that up to 15 percentage points of the multinational wage premium can be explained by the level of foreign ownership per se. They also indicate that greater foreign equity participation leads to greater transfer of both tangible and intangible assets and thus higher wage premia, especially for skilled workers. This relationship is better approximated as linear rather than binary in contrast to previous literature.

Impact of board ownership, CEO‐Chair duality and foreign equity participation on auditor quality choice of IPO companies

Purpose – The purpose of this paper is to examine the impact of corporate governance on auditor quality choice by IPO companies in an emerging market setting. It seeks to identify whether efficienc ...

Service Sector Restrictiveness and Economic Performance: An Estimation for the MENA Region

AbstractThis article aims to assess barriers to service provision in the banking and telecom sectors of four Middle East and North Africa (MENA) countries, and the impact of these barriers on firm performance. Our methodology involves the computation of aggregate and modal trade restrictiveness indices (TRIs) by sector, and utilisation of these TRIs as regressors of firms’ economic performance. Our analysis shows that significant regulatory reforms have taken place in the service sectors over the last decade in the MENA region, but that a broad range of restrictions still remain. The most significant change in these service sectors has been the lifting or softening of constraints on foreign equity participation. These regulatory reforms, however, have had varying degrees of impact on market structure depending on the country, the sector and the mode. Moreover, service restrictions have had an impact on economic performance in the three studied sectors. While a rent‐creating effect seems to dominate restrictions on banking and fixed telecom sectors, a cost‐inefficiency effect seems to dominate the mobile telecom sector. Finally, we find evidence of interactions between modal restrictions for banking services. Our results suggest a complementarity between Modes 3 and 1, as well as a substitution effect between Modes 3 and 4 in the banking sector.