Foreign Ownership, Firm Performance, and the Geography of Civic Capital

Abstract

It is well established in the literature that foreign affiliates are subject to a series of governance and assimilation costs that deteriorate their performance. This is particularly relevant for firms which have been recently acquired by foreign investors. We employ the variation in civic capital across Italian provinces as an exogenous determinant of these governance costs. We derive the testable implication that there should be a clean evidence of a negative effect of foreign ownership on performance in areas where civic capital is low. As the level of local civic capital increases, this reduces the scope for internal transaction costs, and makes the governance of foreign affiliates easier, and their performance better.We take this prediction to the data and find confirmation of our conceptual framework. Our analysis underlines the importance of the geographic heterogeneity of informal institutions when analyzing the effect of foreign ownership on firm performance. JEL Classification: F21, F23, D21, D23, R30, Z13

Natural resource endowment and firm performance: The moderating role of institutional endowment

“…Thus, institutional environments function as contingency contexts that differentiate firm outcomes. Bürker, Franco, and Minerva () find that geographic heterogeneity of informal norms and institutions influence firm performance. Industrial policies by governments (and, for that matter, natural resource sectors) influence firm performance (Lazzarini, ; Musachio et al, ) because of the idea of “imperfect tradability of key inputs (and technologies) associated with modern sector production” (Rodrik, , p. 78).…”

Impacts of foreign direct investment on efficiency in Swedish manufacturing

“…There are several functions in a company’s business that are duplicated when the firm is owned by foreigners, including marketing and reporting to local authorities (who may be hostile to foreign owners in practice, regardless of what the official policy is) as well as building up relationships with local staff and local providers. Markusen ( 2002 ) and Bürker et al ( 2013 ) demonstrate that these costs are important aspects of multinational companies’ decision on whether or not to produce abroad, and these added costs could potentially reduce the efficiency of firms that become FO. On the other hand, an important role that FDI can play is to effectively improve competition in the local markets and, at the company level, this could lead to improved efficiency as well.…”

Economic uncertainty, ownership structure and small and medium enterprises performance

“…Interestingly, changes in ownership are associated with a relevant modification of property rights, which are most likely associated with a considerable change in the corporate governance (Bürker et al, 2013); these will lead to enhance or reduce firm performance. By employing different thresholds to identify ownership, following Nguyen (2011), Bürker et al (2013) and Doan et al (2018), we alternatively define ownership as a large block holder when any shareholder owns more than 50% of the total shares outstanding. Table 7 shows the robustness test for economic uncertainty and firm performance, whereas the effect of interaction between uncertainty and ownership structure on firm performance is reported in Table 8.…”

“…Numerous scholars reveal empirical evidence that foreign ownership is associated with better performance via monitoring of managers' actions (Ben‐Nasr, 2016; Denis et al, 1999; Gillan & Starks, 2003). Bürker, Franco, and Minerva (2013) indicate that according to the internalisation theory, foreign‐owned firms acquire superior intangible assets coming from the parent company (e.g., technology, managerial skills, production method, brand names). Technology is also an important contributor to SMEs in the long run because direct investment flows from developed countries to developing countries, bringing with it higher‐ranking technology, organisational capital, and access to international capital markets; this would be the best way to improve firm performance in the host countries (Chari, Chen, & Dominguez, 2012; Hallward‐Driemeier, Wallsten, & Xu, 2006).…”