Economic slowdowns, hazard rates and foreign ownership

Abstract

This paper evaluates the link between foreign ownership and firm exit during crises, using a longitudinal micro dataset over an 18-year period. We address two main questions: first, if foreign affiliates have different failure rates than domestic firms during economic downturns, and second if the foreignness effect differs between two different economic downturns. The results partially confirm the liability of foreignness argument, suggesting that when the crisis was more pronounced at home than abroad, the differences in hazard rates between foreign and domestic firms reduce. The footloose argument is also only partially confirmed. For policy makers, our results on survival dynamics during crises are not against policies stimulating inward investment. There is no need to fear that foreign firms destabilize more than usual the host economy during economic slowdowns by immediately closing down operations.ß 2013 Elsevier Ltd. All rights reserved. Author's personal copy downturns because foreign firms hold some sort of ownership advantages over domestic ones. Foreign multinationals may have better conditions to face the crises owing to their multinationality advantages or they may resist more due to the sunk costs associated with their investment (Chung, Lu, & Beamish, 2008;Desai, Foley, & Forbes, 2004;Ghosal, 2010). Studies about the importance of foreign ownership during crises are relatively scarce, the notable exceptions being the studies by Á lvarez and Gö rg (2009), Lee and Makhija (2009) and Varum and Rocha (2011). Hence, in this paper we use longitudinal firm-level data for a large time span to assess, first, whether foreign ownership contributes to differentiating the incidence of firm exit during crises, controlling for other determinants that may affect the exit risk of firms. We use discrete time hazard models that account for firm-level unobserved heterogeneity to answer our research questions. In addition, we analyze whether the foreign ownership effect differs between two crises, which occurred in the same economy, in different periods of time and with different characteristics. To our knowledge the paper is unique in these respects. We analyze manufacturing firms created in Portugal in the period 1988-2005 by following their paths during the whole period and the economic slowdowns of early 1990s and 2000s. Portugal in particular is an interesting case as the economy experienced these significant slowdowns which provide us with 'a natural experiment to identify directly the ''footloose nature'' of multinationals' (Á lvarez & Gö rg, 2009).Results from past lessons may be of value in understanding more modern recessions, such as the one from which the world economy is currently recovering. For the Portuguese case we add to the previous important contributions of Portugal (2002, 2004), by enlarging the time span of their study and focusing on the potential effect of foreign ownership during (different) downturn periods. Compared to Varum and Rocha (2011), who examined the link between foreign ownershi...

Survival of Firms in Crisis: Evidence from Antalya Tourism City

“…Turning now to the results for industry-specific variables, we find that the agglomeration variable has an inverted U-shaped relationship with firm survival, as indicated by the positive coefficient on the variable and the negative coefficient of its square, which concurs with the results of previous studies (Cala et al, 2015;Cainelli et al, 2014;Varum et al, 2014). The results show that specialization diminishes firm exit, which supports the findings of the descriptive analysis of firm survival in specialized districts, such as those seen in the Kemer and Belek tourism districts.…”

“…A relatively high entry rate reflects tougher competition and may reduce the likelihood of survival for firms (Mata & Portugal, 2002;Taymaz & Özler, 2007;Resende et al, 2016), and the negative impact of this variable on firm survival is confirmed by a large number of studies (e.g. Varum & Rocha, 2012;Varum et al, 2014). Entry rate is computed as the number of new firms in a given sector and year divided by the total number of firms operating in that sector in the previous year.…”

“…Macroeconomic conditions can also impact upon a firm's survival prospects (Varum et al, 2014). Favourable economic conditions can be expected to result in higher demand and price-cost margins, and may possibly improve the survival of firms, as incumbents do not have to act aggressively against new entrants (Basile et al, 2017).…”

“…Finally, following Varum et al (2014), we utilize a foreign x downturn variable to investigate whether or not foreign-owned firms are more resilient during the downturn periods. There are presently two conflicting arguments on the role of foreign ownership on firm survival during downturns (Godart et al, 2012, Varum et al, 2014, one which argues that multinationals are more footloose than domestic firms, and thus more likely to exit in times of crisis; and the other that claims that multinationals typically have larger sunk costs than domestic firms, and have better access to resources and capabilities. This implies that they will be less reluctant to exit the market during a downturn, and may prefer to operate at a loss for a while, hoping that the economy will get back on track.…”

Internationalization of Colombian Firms: Competitive and Productivity as a Problem to Enter the Asian Market

“…It is noted that the contribution of the lack of qualified staff provides visibility given that as noted in Figure 2, is part of a necessary component for business development, without hesitation, this is due to the low levels of internationalization that would allow us an exchange not only of goods and services (Shearmur, Doloreux, & Laperrière, 2015;Meyer, Skaggs, Nair, & Cohen, 2015), but also of governmental support, which is another detailed contribution in Table 3 and in relation to 错误!未找到引用源。 which shows the correlation it has with little access to business incentives, which would promote technological resources necessary for business development; instead of seeing this as a disadvantage, it should be an open mouth for all those who are willing to be big business (Côrte-Real, Oliveira, & Ruivo, 2017), since Colombia is a country with great biodiversity and infinite possibilities to take advantage of this quality to make us known internationally. According to the research sample, it is considered that there is a lack of knowledge both to carry out a business activity and in the same way to obtain the resources to increase economic prospects (Varum, Rocha, & Valente da Silva, 2014), therefore, incentives are lacking through the entities endorsed to have a support that does not mean higher business costs; on the other hand, we are aware that do not have the technology to compete with large multinationals, and for this, SMEs require support. It is clear that the economic level in Colombia is taken advantage by strong firms economically and technologically, which complicates competing with this type of firms, since its have a wide recognition; financing, with qualified personnel and high innovative capacity.…”