Foreign Firms Research Articles

Propagating a permanent war economy? U.S. FDI in warring host countries

PurposeConventional wisdom suggests that war in the host country makes it unattractive for foreign firms to invest. To see if this is true for US firms on the aggregate, this paper aims to examine the veracity of a “permanent war economy” hypothesis, that foreign direct investment (FDI) may, in fact, increase in the host country not despite, but because of, war, i.e. one that lends credence to the idea that, in the USA, “defense [has] become one of constant preparation for future wars and foreign interventions rather than an exercise in response to one-off threats.”Design/methodology/approachThe authors test the hypotheses using Generalized Method of Moments estimation, with Heckman Selection, on US FDI data from the Bureau of Economic Analysis and war data from the Correlates of War2 Project, the Uppsala Conflict Data Program/International Peace Research Institute data set, the International Crisis Behavior Project and the Center for Systemic Peace Major Episodes of Political Violence data set. The final sample consists of 351 country-year observations in 55 host countries from 1982 to 2006.FindingsThe findings indicate that overall US FDI in a host country in a given year decreases if the host country is engaged in wars with multiple countries and if the US Government is involved in the war. Most notably, the results show that US involvement in multiple host country wars is actually correlated with increased US FDI into the host country, providing empirical support for the “permanent war economy” hypothesis.Originality/valueWhile other studies have focused on war and FDI, the authors have sought to show the impact of the involvement of arguably the most influential country, i.e. the USA, in the sovereign matters of a focal host country. By studying FDI from the USA as a function of US involvement in wars overseas, over the years with the greatest use of private military companies by the USA and the largest portion of global FDI accounted for by the USA, this work motivates a research agenda on home-host-"other” relations in the context of war and FDI, with the “other” being the supranational “elephant in the room.”

Friend or Foe? Revealing R&D spillovers from FDI in Indonesia

The benefits of research and development (R&D) investment extend beyond the undertaking firms and may impact the wider economy through spillovers. This study examines the effect of Multinational Companies (MNCs)’ R&D intra-industrial spillovers on total factor productivity (TFP) using firm-level data from Indonesia between 2017 and 2019. To address the cross-sectional dependence, we employed a fixed-effects estimator with Driscoll and Kraay’s (1998) standard errors. We also incorporate a cost-based approach with a weighting matrix that integrates human resources into R&D activities to capture the R&D intra-industrial spillover from foreign companies. The findings indicate that intra-industrial R&D spillovers from MNCs negatively impact TFP, suggesting product-market rivalry in the domestic market. Foreign and domestic firms operating in a subsector that relies on similar technologies compete to enhance productivity, resulting in business theft. Increasing firms’ capability in human resource absorption, access to foreign inputs, firm size, and market concentration can improve TFP in manufacturing firms. This finding has policy implications for the proportions of R&D spending. The results also support the need to foster open innovation by creating an environment that encourages collaboration, skill development, and local innovation.

Does R&D Stimulate Firm’s Efficiency in the Indonesian Manufacturing Sector?

The impact of research and development (R&D) spending has been shown significantly in promoting country’s economic growth and productivity. Hence, we examine the research question by employing Indonesian manufacturing firm-level dataset in the years of 2017–2019 and by using Stochastic Frontier Analysis (SFA) to reveal whether heterogeneous firm’s R&D spending contributes to the efficiency performance of the company. The finding reveals the robust positive effect of R&D spending to the efficiency performance, which implies that firms allocating more R&D spending will perform better efficiency due to, for example, managerial expertise improvements. An interesting finding is shown by the interaction model for which larger R&D allocated by foreign firm will boost better efficiency than that allocated by domestic firms, supporting prior arguments that foreign firm can be the driver of innovation as they are more likely to be closer to the world technology frontier. Several policy implications are suggested such as in-house R&D program to encourage human capital development and tax incentive to avoid market rivalry with foreign firms.

Does Ownership Influence Corporate Social Responsibility (CSR)? A Study Of Post-Csr Law Implementation In India

Objective: This study examines the influence of different ownership structures on corporate social responsibility spending in a mandatory CSR regime. Method: We use the CSR data under statutory mandate reported by the top 500 publicly listed Indian firms of the first four years after CSR law implementation in 2014 on Bombay Stock Exchange and the Ministry of Corporate Affairs website. Using institutional and agency theory arguments, we hypothesize that ownership structure influences CSR spending. We use multiple logistics regression for our statistical analyses. Results: In line with our prediction, our results reveal that different ownership structures influence the variation in CSR spending. Foreign firms spend on CSR at par with the statutory mandate. Government firms spend above the statutory mandate, and promoter-owned firms spend below the statutory mandate. Conclusion: Through CSR spending on social development initiatives, firms can contribute to the United Nations' sustainable development goals (SDGs) and build their credibility among stakeholders. Our study explains the influence of different ownership structures on CSR spending in a mandatory CSR regime. This study can help policymakers revisit the CSR law provisions by understanding why some firms are spending more and why some firms are spending less on CSR and encourage firms to spend more on CSR initiatives. We leverage institutional and agency theory to explain our findings.

Cross-border Regulatory Cooperation and Cash Holdings: Evidence from US-listed Foreign Firms

Cross-border Regulatory Cooperation and Cash Holdings: Evidence from US-listed Foreign Firms

Санкционные риски и региональное развитие (на примере России)

Economic sanctions and countersanctions are expanding worldwide, posing spatially heterogeneous threats to most countries. The study aims to develop and test a methodology for assessing regional exposure to sanctions risks using Russian data. The share of foreign trade with the countries that introduced restrictions can be used to evaluate the exposure to new trade barriers. In several cases, this share exceeded 50 %, necessitating a rapid reorientation of product flows in Nenets, Khanty-Mansiysk Autonomous Areas, Komi, and Murmansk region. The Kaliningrad, Kaluga, and Leningrad regions exhibit high import dependence in the production sector, particularly in the automotive industry, due to their active involvement in global supply chains. Sanctions against large legal entities created risks for the stability of regional economies but the increase in demand for domestic products offset this impact. Foreign enterprises exiting the market posed risks of disrupting production chains but also provided opportunities for local business development. Before some countries introduced sanctions, their companies had held more than 20 % of the market share in Kaluga, Moscow region, and the city of Moscow. However, the share of foreign firms that announced complete withdrawal exceeded 5 % of the market only in the Komi, Samara, Leningrad, and Moscow regions. An integral index of exposure was proposed based on the mentioned indicators. Its value is lower for the regions with a more diversified economy and foreign trade. The greatest risks were observed in the closely connected to the European Union northwestern territories of Russia: Karelia, Komi, Kaliningrad, Leningrad, and Arkhangelsk regions. In 2022, regions with a high index value were more likely to experience a decline in economic activity, but in 2023, this impact was less explicit due to economic adaptation and transformation. Based on the results of the study, some recommendations can be formulated.

Social business environment and transnational corporations’ loyalty: the executives’ perceptions in Tanzania

The economic growth of the host low-income countries, which depends on foreign investments, among other things, has been impacted by the disloyal behaviours of foreign firms, including transnational corporations (TNCs). The demonstrated disloyal behaviours include the closure of operations and productions, scaling back expansion plans, and shifting income-generating operations to other countries with favourable business settings. This study examines the influence of the social business environment (SBE) on TNCs loyalty towards the host country, Tanzania. A cross-sectional design was employed to collect data from 131 TNCs in Tanzania using a structured questionnaire. The hypotheses were tested by hierarchical regression analysis. Findings reveal that the SBE has a positive and significant effect on TNCs loyalty through social attitudes, language, consumer preferences, and attitudes towards foreign businesses. Other dimensions of SBE, including age structure, gender roles, and the population’s literacy level, have negative and insignificant effects. Among all dimensions of the SBE, language is the best predictor of TNCs loyalty in Tanzania, followed by social attitudes, customer preferences, and attitudes of society towards foreign businesses. Based on the results, it is suggested that policymakers establish consistent social policies that encourage favourable social attitudes and beliefs, local and international language usage and proficiency, predictable customer preferences, and amicable attitudes of society towards foreign businesses to stimulate high TNC loyalty in Tanzania, which is crucial for sustainable economic development.

Paying for Legitimacy: Autocracy, Nonmarket Strategy, and the Liability of Foreignness

Although the liability of foreignness has been shown to present real economic barriers for foreign firms in various contexts around the globe, scholars continue to debate what drives this liability in different market contexts: lack of information due to institutional distance, lack of social embeddedness, discrimination, or something else. In this study, we propose a new theory, that in corporate lobbying within the nonmarket strategy context, the liability of foreignness is driven in no small part by a values-based ideological conflict stemming from the divide between democracy and autocracy. Private-sector firms from autocratic countries face costs of illegitimacy in Washington, D.C., and professional corporate lobbyists charge such firms a fee premium, in effect, to pay for legitimacy. We conduct an empirical study of the lobbying fees charged by professional corporate lobbyists in Washington, D.C., to their domestic and foreign firm clients, and the results strongly support the predictions of our theory. We also show that the liability of foreignness in this context endures for foreign firms from autocratic countries over the 15-year length of our sample period. Offering a new theoretical perspective as well as new empirical findings regarding the liability of foreignness, our study has practical implications for managers of foreign firms and may also generalize to other market contexts.

Challenges faced by foreign companies in Turkey due to volatility of the local currency

Even though the working climate in Turkey is widely considered positive, many foreign enterprises have found success there. Local currency fluctuation is one of the key difficulties that foreign enterprises have noticed. This project focuses on currency mercurial in the context of Turkish foreign firms. Secondary means of collecting data have been employed in this project. Information has been gathered from the articles. It has been observed that currently, it is critical for the sustainability of international companies as the Turkish Lira is continuously fluctuating, and this was considered the most terrible time for the economy to return to the previous spirit. Certain factors have affected the Turkish economy, and this instability has brought challenges not only for the international company’s survival but also for the domestic companies. It has been concluded that it is affecting the financial performance of the companies and is empirically supported by past studies. It will make investing easier for anyone interested in the Turkish market. It also helps them foresee their profitability and estimate their risk. It is regarded as a crucial tool for decision-makers to determine the intended course of action in light of the impact of currency mercurial and to enable them to modify their policies in light of the present dynamics.

Spillover effect of foreign direct investment on wage-inequality in Indian manufacturing industries

PurposeThe purpose of this paper is to study the spillover effects of foreign direct investment (FDI) on skilled–unskilled wage inequality in the Indian manufacturing industries.Design/methodology/approachThe authors show theoretically with a model of spillover that if foreign firms (receiving FDI) have a negative spillover effect on domestic firms (not receiving FDI), then the level of capital and skilled workers in the domestic firms falls down. Consequently, the authors conduct an empirical analysis by using system GMM estimation technique on the firm-level data of the Indian organised manufacturing sector.FindingsThe authors show that wage inequality worsens when there is negative spillover effects like competition spillover or skill spillover effect of FDI in India.Originality/valueTo the best of the authors’ knowledge, this is the first attempt to measure the various spillover effects of FDI on the wage inequality in the Indian manufacturing industries by using firm-level data.

All politics starts local: Liability of stateness and subnational labor markets

AbstractResearch SummaryState‐controlled acquirers face a liability of stateness (LoS) because host country stakeholders consider them less legitimate and as representatives of foreign political power. We argue that due to LoS, state‐owned enterprises (SOEs) face more regulatory scrutiny in cross‐border acquisitions than comparable private‐owned enterprises (POEs). Applying a voting behavior perspective, we further posit this increased regulatory scrutiny is reduced when acquisitions occur via intermediaries, and in host communities less averse to state ownership due to local labor conditions. Using a sample of cross‐border acquisitions with acquirers from 44 economies and targets in 50 US states, we find that SOEs are 9% more likely to attract additional regulatory scrutiny than POEs. However, this likelihood decreases with indirect acquisitions and in host regions with high unemployment.Managerial SummaryState‐owned enterprises experience challenges in their cross‐border acquisitions because people in host societies do not trust them. As a result, regulatory authorities, such as CFIUS in the United States, subject foreign SOE acquirers to greater scrutiny. However, by acquiring foreign firms through subsidiaries rather than through parent organizations, the state influence becomes less visible, resulting in less regulatory scrutiny. Moreover, local stakeholders are concerned with economic opportunities in their local area, which they prioritize over ideological concerns at time of economic crisis. Consequently, SOE acquirers face less additional scrutiny in local communities with high unemployment. Thus, SOE acquirers can work with local communities to overcome the negative perception they encounter when entering foreign markets.

Research and Analysis of Modern Consulate Complexes --Taking Yantai Hill in Fuzhou City as an Example

Since the First Opium War, foreign forces have flooded into China, building a great variety of public buildings across China, and importing Western culture. As one of the representatives of the recent Western culture, the consulate building plays an important role in history. As the political, economic, and cultural center of Fujian Province, Fujian was introduced to many Western cultures as one of the five port cities after the signing of the Treaty of Nanjing. Foreigners set up all kinds of buildings and municipal facilities here, such as consulate buildings, customs, foreign firms, churches, hospitals, workshops, clubs, etc. Western architectural techniques and forms have collided and fused with the traditional architectural culture of Fuzhou, together constituting a diverse modern architectural history of Fuzhou. Taking the modern consulate building complex in Yantai Mountain of Fuzhou City as an example, through field research and literature arrangement and induction, we analyze the buildings of modern consulates, understand the historical evolution of consulate buildings in Fuzhou, the architectural form and the existing situation, excavate their characteristics and summarize them, to provide basic information for the study of modern architectural history in Fuzhou. The article concluded that the Western consulate architecture is characterized by the central axis symmetry, the characteristics of each country are obvious, while retaining part of the local characteristics, to achieve the fusion of Chinese and foreign.

Bound by ancestors: Immigration, credit frictions, and global supply chain formation

This paper shows that the ancestry composition shaped by century-long immigration to the US can explain the current structure of global supply chains. Using an instrumental variable strategy combined with a novel dataset that links firm-to-firm global supply chains with their location information and historical migration data, we find that the co-ethnic networks have a positive causal impact on global supply chain relationships between foreign countries and US counties. The positive impact not only exists in supplier–customer relationships but also extends to strategic partnerships and trade in services. The positive impact is stronger in counties in which a larger number of firms are credit constrained, and such a stronger effect becomes even more pronounced when foreign firms are located in countries with weak contract enforcement. The results suggest that co-ethnic networks serve as social collateral to overcome credit constraints and facilitate global supply chain formation.

Foreign Ownership Structure, Sustainable Finance, and Firm Value Nexus: Evidence from the Egyptian Banking Sector

Foreign Ownership Structure, Sustainable Finance, and Firm Value Nexus: Evidence from the Egyptian Banking Sector

Foreign Direct Investment, Foreign Certification and Firm Performance in Morocco: Evidence from the World Bank Enterprise Survey

Abstract In an increasingly complex international environment, the expansion of global capital flows, particularly foreign direct investment (FDI),has become an important catalyst in developing countries, in part due to a large and significant integration into global value chains (GVCs). Theoretically, the presence of multinationals in the host country is supposed to increase productivity, employment, wages, know-how, and technology of domestic firms. However, so far, the results in the empirical literature have been unclear, mainly due to the limited reliable and detailed enterprise-level data. As a result, in this paper we attempt to examine whether there is a significant difference between multinationals (MNE) and domestic firms in Morocco on a set of economic performance outcomes. To do so, we used firm-level data obtained from the World Bank Enterprise Survey for the year 2019, using a quasi experimental technique called propensity score matching (PSM). The results reveal that the difference between foreign-owned and domestic matched firms leads to a decrease in labor productivity, higher employment and non significant impact on wages. In addition, our findings indicate that the use of foreign certification shows a positive impact on the demand of skilled labor than for foreign ownership indicator.

Structural gravity and the gains from trade under imperfect competition: Quantifying the effects of the European Single Market

The structural gravity model is the workhorse model in international trade to estimate the drivers of trade costs. We propose a new gravity estimation procedure that allows us to disentangle exogenous trade costs and endogenous aggregate markups under oligopoly. Our method can be easily implemented in standard gravity data sets, and we illustrate it by analyzing the competition and welfare effects of the European Single Market. We find that abolishing the European Single Market would increase domestic aggregate markups in EU member countries by 2 to 6 percent. Welfare effects of trade liberalization are larger due to changes in competition among domestic and foreign firms. Our findings highlight that evaluations of trade policy changes and trade cost reductions should also consider their effects on competition.

Capital market liability of foreignness and country-of-origin stereotype: An empirical investigation

Foreign firms face a liability of foreignness (LOF) in capital markets outside their home countries. Focusing on discrimination hazards as an antecedent to capital market liability of foreignness (CMLOF), we extend the concept of country-of-origin stereotypes to capture discrimination hazards in capital markets. We employ data from foreign firms listed on the three major stock exchanges in the United States from 2002 to 2016 to demonstrate that, compared with domestic US firms, foreign firms are discounted on major stock exchanges in the US and that foreign firms from countries stereotyped as high-warmth and high-competence are not discounted. Our results reveal that discrimination hazards do impact CMLOFs, suggesting that firms venturing into foreign capital markets should invest in perceptions of warmth to mitigate CMLOFs.

Political lobbying by foreign firms: A new firm-level data set

In this paper, we advance recent calls to deliver a novel lobbying data source through which researchers can analyze national and international sociopolitical environments and their impact on foreign firms. Our focus is mainly on lobbying activities by foreign firms in the US. The lobbying activities by foreign firms in the US have increased tremendously in the last two decades. However, due to data challenges, empirical examinations by researchers have been limited on this topic. Limited studies that have examined lobbying activities by foreign firms in the US have studied it at an aggregate level. In this paper, we provide lobbying information for all foreign firms in the US since 1998; empirically validate the data by conducting theory-driven hypotheses testing; and suggest future research ideas.

Cross-border M&As and the export green-technological sophistication: evidence from China

ABSTRACT Based on the Chinese Annual Survey of Industrial Firms (CASIF) database, this paper constructs a PSM-DID model to analyse the impact of cross-border mergers and acquisitions (M&As) on the export green-technological sophistication of Chinese industrial firms. The results show that cross-border M&As can effectively promote the export green-technological sophistication of acquired firms. The promoting effect of M&As increases gradually over time. Further, the heterogeneity results demonstrate that the promoting effect is more significant in private firms, partially acquired firms, firms in pollution-intensive industries and eastern areas. Finally, cross-border M&As can improve the export green-technological sophistication through two channels: improving green innovation capabilities and introducing pollution control equipment. Our results are significant for developing countries’ foreign investment guidance policies and firms’ green transformation.

Impact of Competitive Strategies on Market Entry and Growth in Emerging Economies in Japan

Purpose: The study sought to analyze the impact of competitive strategies on market entry and growth in emerging economies in Japan
 Materials and Methods: The study adopted a desktop methodology. Desk research refers to secondary data or that which can be collected without fieldwork. Desk research is basically involved in collecting data from existing resources hence it is often considered a low cost technique as compared to field research, as the main cost is involved in executive’s time, telephone charges and directories. Thus, the study relied on already published studies, reports and statistics. This secondary data was easily accessed through the online journals and library
 Findings: the study on competitive strategies in emerging economies in Japan revealed that cost leadership strategies facilitated successful market entry, while differentiation strategies promoted long-term growth. Strategic alliances with local firms were crucial for overcoming barriers, and early entry provided a competitive edge. Adapting strategies to Japan's unique cultural and regulatory context was deemed essential for success in emerging markets.
 Unique Contribution to Theory, Practice and Policy: The study recommends fosters a win-win scenario where foreign firms can thrive, and the host economy benefits from increased investments and job opportunities. Developing local talent and transferring knowledge to the local workforce is crucial for long-term growth. Both firms and governments should invest in skill development programs and knowledge transfer initiatives. Firms should prioritize hiring and training local talent, while governments can incentivize such efforts through grants and tax incentives. This practice-policy collaboration ensures that emerging economies can benefit not only from the capital but also from the knowledge and expertise brought by foreign firms.