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

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  • 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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Cited by:
  1. Won Oh & Young Chang & Aleksey Martynov, 2011. "The Effect of Ownership Structure on Corporate Social Responsibility: Empirical Evidence from Korea," Journal of Business Ethics, Springer, Springer, vol. 104(2), pages 283-297, December.
  2. Alessandra Guariglia & Xiaoxuan Liu & Lina Song, . "Internal Finance and Growth: Microeconometric Evidence on Chinese Firms," Discussion Papers, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) 09/11, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  3. Iuliana Oana MIHAI, 2012. "Foreign Owned Companies and Financial Performance. A Case Study on Companies Listed on Bucharest Stock Exchange," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 1, pages 13-20.
  4. Iuliana Oana MIHAI, 2011. "Foreign Capital and Firm Performance - Study Case on Companies Listed on BSE," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 400-405.

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