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

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Foreign Ownership and Corporate Financial Decision Making: A Review and Future Research Agenda

“…Taking into account civic capital variation across Italian provinces, Bürker, Franco & Minerva (2013) observe how foreign ownership influences firm performance. They found that the effect of foreign ownership is less favorable for firms located in provinces with low civic capital.…”

Leader Dismissal or Continuity, President Longevity, Geographic Orientation of Owners and Team Performance: Insights from French Men’s Football, 1994–2016

“…The impact of ownership origin and, in particular, foreign ownership on firm performance is well researched (Bürker et al 2013;Carney et al 2019). Referring to Dunning (1981) and Caves (2007), Bürker et al (2013) note the advantages related to foreign ownership stressed by the internationalisation literature.…”

“…The impact of ownership origin and, in particular, foreign ownership on firm performance is well researched (Bürker et al 2013;Carney et al 2019). Referring to Dunning (1981) and Caves (2007), Bürker et al (2013) note the advantages related to foreign ownership stressed by the internationalisation literature. These are linked to the fact that multinational firms possess sophisticated assets which domestic firms lack, including managerial expertise, process and production technologies or brand names.…”

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