Foreign Firm Performance Research Articles

Invited Dirty Guests: The Role of Industry Legitimacy on Environmental Performance of Foreign Firms

Invited Dirty Guests: The Role of Industry Legitimacy on Environmental Performance of Foreign Firms

Happiness in Sub-National Regions and Foreign Firm Performance: Evidence from China

Happiness in Sub-National Regions and Foreign Firm Performance: Evidence from China

The effect of subnational legal effectiveness and social trust on foreign firm performance: from subnational analysis in emerging economies

PurposeThis study aims to verify the respective and interactive effects of subnational formal and informal institutions (i.e. legal effectiveness and social trust) on foreign firm performance, and further identify the contingent factor (i.e. institutional experience) that moderates these relationships.Design/methodology/approachDrawing on the institutional-based view, this study develops several hypotheses that are tested using a comprehensive dataset from four main data sources. The authors’ unit of analysis is foreign firms operating in China. The authors ran ordinary least squares (OLS) regression model to investigate the effects. A series of robustness tests and endogeneity tests were performed.FindingsThe results show that both legal effectiveness and social trust at subnational level positively affect foreign firm performance respectively. Legal effectiveness and social trust at subnational level have complementary effect in promoting the performance of foreign firms. Foreign firm's institutional experience in target region of emerging economies host country strengthens the positive impact of subnational legal effectiveness on performance, but weakens the positive impact of subnational social trust on performance.Practical implicationsIt is important to fully understand the impact of heterogeneous institutional environments of subnational regions in emerging economies on foreign firm performance, which would help foreign firm make a more suitable secondary choice decision of investment destinations at the subnational regional level.Originality/valueFirst, drawing on institutional-based view, the authors incorporate the subnational formal and informal institutional factors to investigate their impacts on foreign firm performance by switching the attention from national level to subnational level in emerging economy host countries. Second, this research furthers existing studies by bridging a missing link between both subnational formal and informal institutional environments and foreign firms' outcomes. Third, the authors prove that the model of subnational formal and informal institutions in influencing foreign firms' performance is contingent on their institutional experience in target subnational region of emerging economy host country.

Environmental performance of foreign firms: Chinese and Japanese firms in Myanmar

Little is known about how the environmental approaches of foreign investors in developing countries are formed. The objective of this study is to conceptualize and investigate the drivers of the environmental performance of foreign firms. This is done through a comparative analysis of the environmental profiles of Chinese and Japanese firms in Myanmar. Applying institutional and resource-based theories, the study investigates the complex and multifaceted roles that domestic regulations and internal resources of firms play in their environmental performance. The study contributes to the literature on corporate environmental behaviour by constructing a novel set of environmental variables connected with FDI. The research is based on survey data covering 296 Chinese and 125 Japanese companies operating in Myanmar. The data are analysed using a hierarchical multiple linear regression. It is found that Japanese companies tend to adopt all-inclusive and comprehensive strategies driven by both regulatory pressure and firm capacity when addressing environmental issues, while the environmental choices of Chinese companies tend to be driven by intra-firm resources. For Chinese companies, neither ownership type nor operating in a polluting industrial sector necessarily influence the environmental profile, whereas both of these variables had significant effects on the environmental performance of Japanese firms. The findings indicate that both resource-based and institutional theories are useful when assessing the influence of environmental regulations on FDI in developing countries.

Global and non-global city locations: the effect of clusters on the performance of foreign firms

ABSTRACT This study examines the effects of subnational regional heterogeneity on the performance of foreign firms. Based on the global city concept, it identified regions with and without global connectivity and then compared the effects of within-country location advantages on foreign firm performance between the regions within a country. Given that present studies offer conflicting findings on how industrial concentration, that is, clusters, affect the performance of business firms, this study argues that they fail to address the global connectivity of subnational regions. Findings from Australia suggest that industrial concentration in regions with global connectivity as highlighted by global cities have a positive effect on the performance of foreign firms located there; however, that is not the case in other non-global city locations. This study thus offers an insight into better understanding this unresolved issue by arguing that the effect of industrial concentration upon a foreign firm’s performance is contingent upon the subnational regions’ global connectivity.

Subnational corruption and foreign firms’ performance: Evidence from China

As a social and economic phenomenon, corruption has attracted much scholarly attention in the field of international business. However, studies concerning corruption generally remain at the national level, overlooking heterogeneity in institutions at the subnational level. This study zooms in on subnational corruption to examine its influence on the performance outcome of foreign firms, as well as the mitigation strategies by foreign firms through building mutual dependence with local governments. Analyzing data on foreign firms operating in China between 2011 and 2013, we find that subnational corruption level is negatively associated with the financial performance of foreign firms. This negative association is weakened by foreign firms’ export ratio and local experience.

The Effect of Subnational Institutions on Foreign Firm Performance: Insights from Emerging Economies

While prior studies have acknowledged the influence of host country institutions in foreign firm behaviors and performance, few investigations have included the roles of subnational institutions. As a matter of the striking institutional difference between emerging economy countries and developed countries, it is important to fully understand the impact of heterogeneous institutional environments of subnational regions in emerging economies on foreign firm performance, which would help foreign firm make a more suitable secondary choice decision of investment destinations at the subnational regional level. At the subnational regions level of emerging economies, we verify the respective and interactive effects of subnational formal and informal institutions (i.e., legal effectiveness and social trust) on foreign firm performance, and further identify the contingent factor (i.e., foreign firm’s institutional experience) that moderates these relationships based on the analysis of multiple secondary databases from China. The results show that, first, both legal effectiveness and social trust at subnational level positively affect foreign firm performance respectively. Second, legal effectiveness and social trust at subnational level have complementary effect in promoting the performance of foreign firms. Third, foreign firm’s institutional experience in target region of emerging economies host country strengthens the positive impact of subnational legal effectiveness on performance, but weakens the positive impact of subnational social trust on performance.

Impacts of Foreign Direct Investments (Fdi) on the Nigerian Economy

Foreign Direct Investment (FDI) is real investment interaction of the rest of the world with domestic economy. Whether this interaction mar or make economic growth depends on the area of strength of each country and usage. The relative increased trend of FDI into the extractive industry especially during the present democratic dispensation compared to the non – extractive sectors pose a question as to whether the quantum add the same way to economy growth in the country, hence this study. The study was meant to determine the effect of foreign direct investment on the Nigeria economy with the ultimate purpose of looking at the relative performance of foreign firms in both the private and public sectors of the economy, determine the relationship between foreign investment and growth of Nigerian economy, as well as evaluate the various contributions of FDI to technological and expertise base of Nigeria. To enhance efficient and effective prosecution of the study, a total sample size of fifty(50) respondents out of a total population of one hundred (100) staff of the foreign exchange market and banks ( both senior and junior were selected for the study). The investigation made use of both primary and secondary sources of data. While text books, journal articles, and other internet materials were reviewed for secondary data, personal Interviews and questionnaires were also used as instruments to gather primary data for the work. A total of nine (9) research questions and two (2) research hypotheses were formulated and used in this study, just as the study was based on stratified random sampling design. Some of the major findings of this work include that FDI; has significant impact on economic growth of Nigeria, accelerates infrastructural development in Nigeria, contributes to the development of Nigeria economy, has positive and negative Impacts on an economy, is adequately spread to all the sectors of Nigerian economy, represents a cornerstone strat

When does knowledge similarity help foreign firms improve performance?

This paper investigates whether knowledge similarity improves the performance of foreign firms and, if so, when. Using panel data on foreign and local firms in China for the years 1998–2007, we empirically find a positive relationship between knowledge similarity and the performance of foreign firms. We find two moderating factors for the relationship, namely foreign ownership share, a firm-level factor that positively moderates the relationship, and market-oriented institution, a province-level factor that negatively moderates the relationship. Our findings identify the detailed theoretical mechanism for the effects of knowledge similarity on the performance of foreign firms under different moderating conditions.

The effect of creative corporate culture and intangibility on the performance of foreign firms traded on the NYSE

PurposeFollowing the tenets of resource-based view, the present study aims to investigate the effect of creative corporate culture according to the competing values framework model at the level of corporate intangibility and its respective repercussions on performance.Design/methodology/approachThe sample included 117 non-USA foreign firms traded on the New York Stock Exchange (NYSE), which issued annual financial reports between 2009 and 2014 using the 20-F form. To meet the study objectives, in addition to the descriptive and comparative analyses, the authors performed regression analyses with panel data, estimating generalized least-squares, two-stage least-squares and ordinary least-squares.FindingsCreative culture had a negative effect on the level of intangibility and corporate performance, while the level of intangibility did not appear to influence corporate performance. When combined, creative culture and intangibility had a potentially negative effect on corporate results. In conclusion, creative corporate culture had a negative effect on performance, even in firms with higher levels of intangibility, characterized by elements like experimentation and innovation.Originality/valueAlthough the study hypotheses were eventually rejected, the analyses are relevant to both the academic setting and the market because of the organizational and institutional aspects evaluated, especially in relation to intangibility and creative culture and in view of the unique cross-cultural approach adopted. Within the corporate setting, the study provides a spectrum of stakeholders with tools to identify the profile of foreign firms traded on the NYSE.

The roles of the information environment and the stock price performance of foreign firms in their decision to delist from U.S. exchanges

We examine the roles of the information environment and the stock price performance of foreign firms in explaining their delisting from U.S. exchanges by focusing on analyst following and cumulative abnormal returns in the pre-delisting periods. We find that compared to non-delisters, firms that delist because of a merger and acquisition have stronger analyst following in the pre-delisting period. On the other hand, involuntary and voluntary delisters experience low and declining analyst coverage prior to delisting. In addition, while firms which delist through a merger and acquisition have strong stock price performance compared to a control sample of non-delisting firms, involuntary delisters display stock price underperformance in the pre-delisting period. Our results suggest that the information environment and the stock price performance play different roles in explaining the delisting decision for different types of delisters.

Institutional Distance, Regional Clusters and Performance of Foreign Subsidiaries: Evidences from Brazil

Institutional distance (ID) has come to be a key concept in understanding the determinant factors of the performance of a multinational company’s (MNC) subsidiaries in emerging economies. However, the results of empirical studies are contradictory and inconclusive. The objective of this study is to evaluate the effects of ID on the performance of foreign firms’ subsidiaries and the extent to which these effects may be mediated by locating these companies within regional clusters and by different choices of entry mode. Through a regression analysis of a sample of 308 subsidiaries of foreign firms, results show that whereas ID is negatively related with the firm’s performance, locations within clusters and access to the resources afforded by economies of agglomeration have positive effects on performance. Finally, the empirical evidence indicates that access to the resources of industrial clusters moderates the effects of ID on the performance, motivating MNCs to adopt overseas entry modes for complete control.

EU accession and foreign-owned firms in Bulgaria

ABSTRACTBulgaria signed the European Union accession treaty in 2005. Accession caused an increase in the volume of inward foreign direct investment flows (IFDI). We analyse World Bank BEEPS firm-level data for 2007 to understand the characteristics and performance of foreign firms in Bulgaria. Regression analysis reveals that foreign firms are larger, have lower capital-to-labour ratios, are more likely to export and are more likely to locate in Sofia. However, foreign firms have had limited success in Bulgaria. They do not exhibit higher sales growth and, in manufacturing, carried out lower capital investment in machinery than domestic firms. The numbers of visits from tax officials is the same for domestic and foreign firms in manufacturing, and lower for foreign firms in the service sector. However, firms with higher exports-to-sales ratios and higher absolute sales were subjected to a higher number of visits from tax officials. These findings suggest that a range of institutional challenges remain for foreign firms in Bulgaria.

How do sub-national institutional constraints impact foreign firm performance?

This paper examines the impact of sub-national institutions on the performance of foreign firms in China. Building on institutional theory, we envisage that the negative effect of sub-national institutional constraints is moderated by firm size and age, entry mode, and market orientation. Our hypotheses are tested on a large-firm-level dataset of about 29,000 foreign firms in 120 cities in China within the period of 1999–2005. We find that firm size and age both have a diminishing positive impact on foreign firm performance; moreover, there is a U-shaped relationship between firm age and foreign firm performance in cities with higher level institutional constraints. We also find that joint ventures help mitigate the negative impact of sub-national institutional constraints on foreign firm performance when the level of institutional constraints is higher.

Immigrants and Foreign Firm Performance

Studies have demonstrated that foreign firms locate where immigrants from their home countries reside and have suggested that doing so can improve performance. We argue that to properly assess how immigrants impact the performance of co-national firms, research must account for heterogeneity in how independent foreign firms (owned by individual foreigners) versus multinational corporation (MNC) subsidiaries (owned by a foreign corporate parent) benefit from immigrant communities. Independent firms have a greater need for resources from the immigrant community and depend more on their individual managers’ personal connections within the community to obtain such resources. Subsidiaries of MNCs can instead rely on the impersonal organizational resources of their parent firm (e.g., brand, reputation, channels) to access valuable immigrant community resources. Using data on foreign firms in Russia during 2006–2011, we find that immigrants improve the profitability of co-national independent firms only if they are managed by immigrant chief executive officers (CEOs), whereas co-national MNC subsidiaries profit from immigrants regardless of their CEOs’ nationality. Our study suggests that although organizations benefit from the resources of co-national immigrant communities in foreign markets, the means by which they activate them—personal or impersonal—systematically vary across different types of firms.

Immigrants and Firm Performance: Effects on Foreign Subsidiaries versus Foreign Entrepreneurial Firms

Prior studies have demonstrated that foreign firms co-locate with immigrants from their home countries, but whether this improves profitability is unclear. We show that co-national immigrant communities positively affect the performance of foreign firms, but that there is significant heterogeneity in this effect depending on the type of firm (entrepreneurial venture or MNC subsidiary) and manager (immigrant versus local). We found that the immigrant community had a much stronger effect on the profits of foreign entrepreneurial firms when they were managed by an immigrant vs. a native CEO. Conversely, MNC subsidiaries derived equal benefits from co-locating with immigrants regardless of their CEO’s nationality. This is consistent with our expectation that entrepreneurial firms have a greater need to be locally embedded and rely more on their local managers’ personal networks to derive benefits from local communities, whereas subsidiaries can derive such benefits based on the established organizational resources of the MNC.

Local Innovativeness and Knowledge Spillovers of Indigenous Firms on Foreign Firms: Evidence from China's ICT Industry

Literature on transboundary knowledge flows has primarily focused on foreign direct investment (FDI) spillover effects in emerging economies during the last decades. Little has been known, however, about whether or not and how foreign firms learn from local firms to enhance their innovation performance. The existing literature on clusters lays much emphasis on the variety of knowledge sources in the process of innovation, but it largely ignores the social and institutional barriers to transboundary knowledge flows. This article argues that for foreign firms operating in emerging economies, the issues about legitimacy and liability of foreignness might inhibit “outsiders” from effective knowledge sourcing; therefore, the social and institutional structure in a region plays a no less significant role than knowledge per se. Based on a large-scale firm-level database from China's information and communications technology (ICT) industry, this article reveals that local innovativeness of indigenous firms significantly stimulates and enhances innovation of foreign firms. It is interesting to find that whereas related variety of a region fails to exert positive influences, ownership diversity and a low extent of market concentration that reflect the openness of a local innovation system significantly affect innovation performance of foreign firms. It calls for more studies on local institutional and social construction of interfirm knowledge flows.

Corporate Governance and Performance of Foreign Firms in India

This article examined the issues related to corporate governance in foreign firms working in India. The three questions examined are: What is the nature of corporate governance in terms of board size, independence and quality of its functioning or its effectiveness? Does board independence and size of the board show difference in compliance with corporate governance? What is the relationship between corporate governance and firms’ performance? These three questions are examined with reference to board size, board composition, board independence, conduct of the board and its committees. The data relate to the period from 2005–2006 to 2011–2012 for 42 foreign firms listed in the National Stock Exchange (NSE). The analysis is based on compliance of the firms with corporate governance mandatory requirements. The degree of compliance with corporate governance is fairly good. Majority of the firms fulfilled the mandatory requirements in all sub-indices of the clause .

Environmental Pressure and the Performance of Foreign Firms in an Emerging Economy

Does environmental management help foreign firms outperform local firms in emerging economies? While existing research suggests that environmental management may or may not benefit firm performance, the question is particularly under-investigated in the emerging economy context. Using the data on foreign investment into China, this study explores whether foreign firms that are under greater environmental pressure, at home or at the host, outperform comparable local firms in an emerging host country. In making this comparison, we use propensity-score matching and a difference-in-differences approach to handle the problem of endogeneity inherent in comparing the performances of foreign versus local firms. We find empirical support that foreign firms perform better than local firms when they are under high environmental pressure in the emerging host country, and this result is driven by the foreign firms originating from countries with high environmental pressure.

Local clusters of SOEs, POEs, and FIEs, international experience, and the performance of foreign firms operating in emerging economies

Drawing on the institutional perspective, this study provides an empirical framework for analyzing how clusters within local institutional environments, along with experience derived from international environments, influence the performance of foreign firms operating in emerging economies. Analyzing a sample of 943 Taiwanese manufacturing firms investing in China, this study found that choosing to locate in proximity to a cluster of privately owned enterprises (POEs) has a U-shaped relationship with the performance of foreign firms, and that choosing to locate close to a cluster of foreign-invested enterprises (FIEs) from the same home country has an inverted U-shaped relationship with the performance of foreign firms. However, choosing to locate within a cluster of state-owned enterprises (SOEs) has no significant effect. Further analysis confirms that the positive impact of a business group's international experience in a less developed country is greater than that of a business group's international experience in a developed country.