Foreign Firms Research Articles

Cost Asymmetry, Commodity Taxes and Antidumping Policies

We examine how the presence of a commodity tax affects the superiority of an antidumping duty and a price undertaking policy under cost asymmetry between the foreign and domestic firms. We obtain several interesting results as follows. First, the domestic welfare under a price undertaking is higher than that under an antidumping duty, if the domestic firm is more efficient than the foreign firm and the normal value is large. Second, the presence of a commodity tax usually leads the domestic government to be more likely to choose an antidumping duty. Third, the presence of a commodity tax leads the foreign firm to prefer a price undertaking to an antidumping duty. The first two results show that the domestic firm’s lower efficiency and the commodity tax can explain why the cases involving adopting a price undertaking are far fewer than those concerned with an antidumping duty in the real world.

Foreign competition and innovation

Empirical studies have found that enhanced foreign competition can encourage or discourage innovation. To address this relationship, I examine a market structure in which a small number of large multi-product oligopolists compete with a large number of small single-product firms in the same industry. The single-product firms are short-lived while the multi-product firms live forever, and the large firms invest in innovation in order to enlarge their product spans. All firms export. I show that an increase in the competitiveness of foreign firms can increase or reduce innovation efforts of a large multi-product firm. Moreover, changes in the incentives to innovate can be different for more-productive and less-productive oligopolists. As a result, aggregate sectoral innovation may rise or decline, depending on the productivity distribution of the oligopolists. I also show that changes in short-term operating profits may not be aligned with changes in the incentives to innovate.

The Accelerator State

China is creating an “accelerator state” through a multi-layered system to identify and fast track the growth of high-tech SMEs in strategic sectors. Certified high-tech SMEs enjoy unique advantages, most notably privileged access to public and private financing. An analysis of the “Little Giants” program—a central feature of the accelerator state—proves that selected firms are indeed benefiting from enhanced financing. The study also reveals flaws in its selection process. The implications for foreign actors are significant. The accelerator state aims to replace imports in key value chains, which poses a direct challenge to foreign firms. The blurred lines between state support and market forces in the scheme also make it more difficult for foreign governments to track distortionary practices and enforce fair competition.

Unveiling the Nexus: Foreign Ownership, Innovation Dynamics, and Firm Performance through a Resource-Based Lens in Vietnam

This study investigates the complex relationships between firm resources, innovation, foreign ownership, and firm performance in the context of Vietnam's emerging market. Using a comprehensive dataset of 17,430 firm-year observations from 1,245 manufacturing firms across Vietnam for the period 2010 to 2023, we employ system GMM estimation to address potential endogeneity concerns. Our findings reveal non-linear effects of firm resources and foreign ownership on performance, measured by both ROA and Tobin's Q. Specifically, we observe inverted U-shape relationships for human capital and foreign ownership, diminishing returns for physical capital, and a positive squared term for R&D intensity. Moreover, we find that foreign ownership positively moderates the effects of firm resources on performance. These results are robust to alternative measures and subgroup analyses. Our study contributes to the literature by providing a nuanced understanding of firm performance drivers in Vietnam's unique institutional context, extending the applicability of resource-based and knowledge-based views to this emerging market. The findings offer valuable insights for managers and policymakers in Vietnam, highlighting the importance of balanced resource allocation, strategic innovation investments, and the potential benefits of foreign ownership in enhancing firm performance.

Caught in the deglobalisation crosswind? De-risking by “China+1” or “In-China-For-China”

PurposeForeign firms in China, particularly those from the Global West, are in a difficult position as deglobalisation and strained international relations create risk. This paper offers research avenues on how operations and supply chain management scholars can analyse the risk factors, de-risking practices, and de-risking outcomes of foreign firms in China.Design/methodology/approachThis paper is primarily based on interviews with managers of foreign firms’ subsidiaries and joint ventures in China between late 2019 and early 2024 and employs institutional theory to develop a conceptual framework.FindingsSix risk factors motivating foreign firms to consider “China+1” (diversification and multi-sourcing) or “In-China-For-China” (localisation with potential bifurcation) are identified. Four pathways focusing on politics, locations, technologies, and people enable further investigation of these de-risking strategies.Originality/valueThis is the first paper to take a deeper look at perceptions, worries, and considerations of foreign firms in China and offers specific recommendations for impactful research.

Strategic collaboration between domestic and foreign firms on production outsourcing processes: Insights from a developing economy Firm's perspective

Worldwide fragmentation of production stages enable the developed and developing economies' firms to gain from ‘foreign outsourcing collaboration (FOC)’. Literature indicates that the majority of studies on foreign outsourcing are based on the perspective of developed countries. Nevertheless, a meager amount of literature is available from the perspective of developing countries. This study bridges the research gap by employing field survey based data collected from 217 textile and apparel firms located in Faisalabad-Pakistan, for the fiscal year 2022. This study mainly examines the impact of: (i) investment in information technology (IT) on FOC in the production process; (ii) strategic integration of outsourcing policies on FOC in the production process; and (iii) strategic policy firms' adopted on FOC in the production process. SmartPLS 4 has been utilized to estimate the partial least square structural equation model. The results signify that investment and utilization of IT induce a higher level of firm performance by enhancing firms' efficiency and improving product quality. Moreover, FOC in production processes increases product quality whereas investment in IT attracts FOC in production processes. The study concludes by offering specific policy recommendations.

Artificial Intelligence's Impact on the Quality of External Auditor Reports in Saudi Domestic and International Audit Companies

This study investigates how external auditors perceive using artificial intelligence (AI) in the Kingdom of Saudi Arabia (KSA). It examines how external auditors perceive the impact of artificial intelligence on audit quality. It also seeks to determine whether local and foreign external auditors have different perspectives on AI's application and how it affects audit quality. Data were gathered using a questionnaire distributed to 44 regional and 20 international companies to accomplish research goals. The auditing manager, audit partners, senior auditors, and other staff members with possible accounting and auditing experience were among the participants. SPSS was used to analyze the data; in our analysis, we used descriptive analysis, validity and reliability testing, and data analysis to test our hypotheses. This investigation reveals that the perceived impact of artificial intelligence (AI) on audit quality does not vary significantly between domestic and foreign audit firms. Regarding audit quality, the perceived contributions of all audit firms—local and foreign—are equal. It also adds to the importance of using AI and how it will enhance the quality of firms and reduce any act of fraud. Lastly, it recommends that firms contribute to training employees on using AI to face and compete with the changes and challenges happening around the world.

Does increased monitoring enhance the credibility of financial reports? Evidence of auditing semi‐annual financial statements

AbstractDue to several financial scandals of Taiwan‐listed foreign firms (known as KY firms), the Taiwan Financial Supervisory Commission requires KY firms to disclose audited semi‐annual financial statements, which were reviewed before. Using the event study, we find higher cumulative abnormal returns for KY firms around the regulation announcement, suggesting the market's positive attitude towards the increase in the assurance level of semi‐annual financial statements. In addition, we apply a difference‐in‐differences test and find the improvement in earnings response coefficients, showing the market's increased perception of audit quality. Our findings should be of interest to regulators, practitioners, and researchers.

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.

Underwriting syndicate structure and foreign IPO underpricing: A team production perspective

Grounded in team production and agency theory, we investigate investment bank opportunism in the context of 466 foreign initial public offerings (IPOs) in U.S. equity markets from 2009 to 2023. Findings reveal that IPO underpricing is higher for foreign firms underwritten by larger and more diverse syndicates owing to concerns about free-riding and moral hazard. Our results are robust to a series of sensitivity tests. Moreover, frequent foreign IPOs by home-country firms and strong home-country legal protection for investors attenuate the positive relationship between underwriting syndicate size and diversity and IPO underpricing. By delineating the collaborative nature of IPO underwriting, this study offers new insights into the implications of syndicate structure for foreign IPO performance.

Международное сотрудничество Кабардино-Балкарской Республики в сфере экономики в первой половине 90-х гг. XX века

In the first half of the 1990s, post-Soviet Russia experienced large-scale transformations of state, socioeconomic, and institutional legal structures, which had a substantial impact on the country’s and the world’s entire economic and legal environment. Because of the transformations that took place, there was a general attitude towards integration into the global market, liberalization of the complex of public relations, including the formation of a certain degree of “independence” of the country’s subjects in the decision-making process, granting the latter greater rights and freedoms in foreign economic activity. Under the current conditions, the Government of the Kabardino-Balkarian Republic attempted establish as many contacts as possible with several countries in the field of trade and economic cooperation, using any opportunities for interaction with the leader-ship of other states, as well as with representatives of individual foreign firms and business cir-cles. This had its positive results, since in the analyzed period several joint Russian-foreign com-panies appeared on the territory of the Kabardino-Balkarian Republic, foreign investments were attracted to the republic for the development of certain industries, and the states began to view the Kabardino-Balkarian Republic as a promising economic partner. However, the study of the histor-ical and statistical material of the foreign economic activity of the Kabardino-Balkarian Republic in the first half of the 90s of the XX century made it possible to identify barriers and threats that did not allow the full use of the internal potential and capabilities of the republic, including: im-perfection of the legislative framework, customs and tax regulation, lack of a developed credit and financial system, inconsistency of actions of federal and regional authorities on certain issues of international cooperation, unfavorable political situation on the North Caucasus.

Inter‐organizational cooperation, financial constraints, and firm's innovation: evidence from five African countries

The study examines whether to collaborate or with whom to collaborate to alleviate the adverse effect of financial constraints on innovation. It utilizes a survey of 1611 firms from five African countries, using from two merged datasets: the Innovation Follow‐Ups Survey and the World Bank Enterprise Survey. The study uses the 2014 survey waves, the latest innovation survey data for African countries. The result shows that inter‐organizational cooperation effectively alleviates the adverse influence of financial constraints on product innovation, while it only reduces its effect on process innovation. Specifically, cooperation with domestic firms, foreign firms, academic or research institutions, government, and consulting companies alleviates the adverse effect of financial constraints on product innovation. However, except for cooperation with the government, other modes of cooperation reduce but do not completely alleviate the adverse impact of financial constraints on a firm's process innovation. Firms with cooperation arrangements with the government can effectively alleviate the negative effect of financial constraints on both product and process innovation. The study further shows that different modes of cooperation have distinct effects on a firm's likelihood of having product or process innovation. Managers of financially constrained companies can consider cooperation as a coping strategy to mitigate the adverse influence of financial constraints on their innovation performance but should pay attention to partner selection.

Cross‐border cooperation and tax avoidance of U.S. cross‐listed firms

AbstractWe investigate how cross‐border cooperation formed by the Multilateral Memorandum of Understanding (MMoU) affects tax avoidance of foreign firms cross‐listed in the U.S. Prior studies show that the MMoU enhances U.S. SEC's regulatory oversight of foreign firms and increases such firms' corporate governance. We utilize data from 27 jurisdictions from 2000 to 2009 and find that U.S. cross‐listed firms mitigate tax avoidance more than do their home‐listed peers after their home jurisdictions become signatories of the MMoU. Our further analyses reveal that improved information environment and enhanced foreign institutional investor monitoring are two possible underlying mechanisms, consistent with the complementarity theory of tax avoidance that self‐serving managers can employ tax avoidance to divert assets when corporate governance is ineffective. We also show that the effect of the MMoU increases with U.S. IRS monitoring and the strength of institutional regimes in foreign firms' home jurisdictions. Collectively, our findings elucidate unintended consequences of the MMoU and provide implications for practitioners and regulators.

Due Diligencia de las empresas transnacionales en la India

Due diligence is the minimum framework for responsibility and reparation for damages in matters of human rights that may arise during and after the production processes of companies have been carried out. In other words, an alternate strategy for encouraging businesses to voluntarily engage with the externalities that their operations may create. This paper aims to argue the notion of due diligence in international corporations situated in India using a qualitative case study technique. In this regard, due diligence and its guiding principles are defined to assess the transparency and management responsibility of international companies in India. Then, cases related to positive and negative aspects of due diligence in this Asian country are presented. Finally, conclusions are given. The results lead to the conclusion that even though India is a desirable destination for international investments in industries like electronics, fashion, finance, and the automotive sector, foreign firms have not yet demonstrated that they have complied with due diligence requirements. The most vulnerable population continues to be subjected to cycles of poverty, slavery, and mistreatment because some of the jobs paid by large corporations represent the only means of economic subsistence.

Does foreign direct investment affect domestic firms’ social security contributions?

Foreign direct investments (FDI) in developing countries are found to affect local domestic firms by introducing competition and spillover effects. This study investigates the effect of FDI on domestic firms’ social security contributions. It exploits China’s 2002 FDI liberalization and applies the difference-in-differences strategy for a causal identification. Using a Chinese firm-level dataset of the manufacturing industry, the estimates show that foreign investments have a positive effect on domestic firms’ social security contributions as a share of the wage base. The estimated effects are more pronounced in private firms, higher-wage firms, and firms facing lower contribution costs. Evidence also indicates that the increase in firms’ propensity to contribute plays an important role in explaining the overall increase in social security contribution rates. The promotion of social security compliance among domestic firms by FDI inflow suggests that market competition could be an attractive and effective approach to combating non-compliance with social insurance regulations.

Development and benefit of FDI in India

Foreign direct investment (FDI) is a key source of funds for India's economic development. Totake advantage of India's evolving economic climate and lower labour, foreign firms engage directly in fastgrowingprivate Indian enterprises. There are so many advantages of Foreign Direct Investments in Indialike Promotion of investment in key areas, New technologies, Increase in Capital inflow, Increase inExports, Promotion of Employment opportunities, Promotion of financial services, Exchange ratestability and development of backward areas. Foreign Direct Investment (FDI) is critical to a country'seconomic development. The entry of foreign cash has allowed India to improve its infrastructure,increase productivity, and increase employment. FDI also serves as a vehicle for acquiring sophisticatedtechnology and mobilizing foreign exchange reserves. This Article is an attempt to explore new benefitsof FDI for the economic growth of the nation.

Country-level dynamic capabilities and inward FDI: a framework on future policy adaptations applied to post-Brexit UK

The purpose of this paper is to establish a policy framework for those responsible for maximising the opportunities of inward foreign direct investment (FDI). Our proposed framework intellectualises the need for dynamic capabilities at the country level (national and local) to sense and seize new opportunities from inward FDI, use this knowledge to mobilise resources and, over time, make changes to reconfigure the UK’s location-specific advantages in a post-Brexit marketplace. Using the backdrop of the UK’s decision to exit the European Union in May 2016 (Brexit) alongside other global challenges (the COVID-19-induced supply chain crisis, political unrest, wars, new trade deals), we explore the changing nature of FDI entering the UK. We explain why an adaptive investment promotion strategy means greater and more widespread benefits of inward FDI for the economy. Then, we propose a policy-oriented dynamic framework for how the benefits of FDI can be maximised during political upheaval. In our analysis and discussion, we highlight how changes in foreign firms’ FDI motives can alter the UK’s value proposition, and over time, the nature of a country’s specific advantages.

Capital Inflow and Technical Efficiency: A Comparative Analysis Between India and China

This article empirically investigates the impact of foreign direct investment (FDI) on the technical efficiency of manufacturing firms in India and China. We apply the first-stage, stochastic frontier analysis (SFA), to the translog production frontier. The first-stage method estimates simultaneously consider exogenous technical efficiency determinants and translog production function factors. We take foreign ownership and foreign inputs as exogenous determinants of technical efficiency with control variables and foreign technology input in the production frontier. Empirical results find that foreign technology shifts the production frontier by enhancing productivity for Chinese firms, not for Indian firms. Furthermore, domestic firms which use foreign inputs and foreign firms are more efficient. JEL Classification: F14, O31, O32

Green credit and firms’ span of global production stages

This paper investigates the impact of the green credit policy on firms' span of global production stages. We leverage a comprehensive dataset, including customs trade data, industrial firm data, and Chinese Input-Output tables, and employ a difference-in-differences design that accounts for the pollution spillover effect within the production network. Our findings indicate that firms in pollution-intensive industries tend to move downstream in the global production line, accompanied by an expansion in the span of production stages. We present evidence that the broader range of production stages can be attributed to increased firm productivity. The effect is more pronounced for hybrid processing firms, private firms, foreign firms, and those in industries that rely on external finance dependence. Our study provides valuable insights into the impact of green credit policies and sheds light on firms' strategies in the context of green development.

Foreign identity and organizational crises: Evidence in the U.S. automobile industry

Multinational corporations (MNCs) adeptly manage Liabilities of Foreignness (LOF) and Assets of Foreignness (AOF) to their advantage, and central to this endeavor is the strategic management of their foreign identity. Our research identifies a critical context where foreign identity remains a liability: organizational crises. Drawing on organizational identity and legitimation process theories, we contend that foreign firms face greater legitimacy losses compared to domestic firms during crises due to magnified foreign identity and differences in legitimacy standards. Furthermore, a crisis in one foreign firm can trigger stronger negative spillover effects on other foreign firms than on domestic firms. We test our theory through an analysis of US automobile recall events, demonstrating significant legitimacy impacts for foreign firms. Our findings illuminate the complex dynamics of foreign identity management, offering new insights into the persistent challenges of LOF during times of crisis.