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The More the Better? Foreign Ownership and Corporate Performance in China

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Author Info
David Greenaway
Alessandra Guariglia
Zhihong Yu
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.

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Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 09/05.

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Handle: RePEc:not:notgep:09/05

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Keywords: Foreign ownership; corporate performance; China;

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  21. William L. Megginson & Jeffry M. Netter, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June. [Downloadable!] (restricted)
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