GEP Research Paper 09/05
The More the Better? Foreign Ownership and Corporate Performance in China
David Greenaway, Alessandra Guariglia, and Zhihong Yu
Summary
This paper investigates the drivers of offshore outsourcing of R&D activities by French manufacturing firms. It shows that French firms engaged in the offshore outsourcing of R&D are outward oriented essentially through exports. Further, technological sourcing seems to be leading this phenomenon more than cost-opportunities motivations.
Abstract
We examine the relationship between the degree of foreign ownership and performance of recipient firms, using of panel of 21,582 Chinese firms over the period 2000-2005. We find that joint-ventures perform better than wholly foreign owned and purely domestic firms. Although productivity and profitability initially rise with foreign ownership, they start declining once foreign ownership reaches beyond 64%. This suggests that some domestic ownership is necessary to ensure optimal performance. We rationalize these findings with a model of a joint-venture, where strategic interactions between a foreign and a domestic owner’s inputs may lead to an inverse U-shaped ownership-performance relationship.
JEL Classification: F2, G32, L25, O5
Keywords: Foreign ownership, corporate performance, China
Issued in January 2009
The paper is available in PDF format