Residual state ownership, foreign ownership and firms' financing patterns

Would different types of ownerships affect each other's effect on firm behavior? We investigate the effect of residual state ownership, foreign ownership, and the interaction between the two on firms' financing patterns, employing the World Bank Enterprise Survey (WBES) dataset, which covers over 130 thousand firms in 139 economies from 2006 to 2017. We find that neither firms with residual state ownership only nor firms with foreign ownership only are positively related with external finance. In comparison, firms with both state and foreign ownerships are associated with higher external finance. The coefficient of the state-foreign interaction is both statistically and economically significant. The increased external finance for firms with both state and foreign ownerships mainly comes from private banks and new equity. Moreover, we explore the channels through which residual state ownership and/or foreign ownership affect firms' financing patterns. Firms with residual state ownership only or foreign ownership only do not actively expand in the market or innovate their products. While firms with both state and foreign ownerships are eagerly engaging in market expansion and product innovation.