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Economic slowdowns, hazard rates and foreign ownership

  • Varum, Celeste
  • Rocha, Vera Catarina
  • Valente da Silva, Hélder

This paper evaluates the link between foreign ownership and firm exit during crises, using a longitudinal micro dataset over an 18-year period. We address two main questions: first, if foreign affiliates have different failure rates than domestic firms during economic downturns, and second if the foreignness effect differs between two different economic downturns. The results partially confirm the liability of foreignness argument, suggesting that when the crisis was more pronounced at home than abroad, the differences in hazard rates between foreign and domestic firms reduce. The footloose argument is also only partially confirmed. For policy makers, our results on survival dynamics during crises are not against policies stimulating inward investment. There is no need to fear that foreign firms destabilize more than usual the host economy during economic slowdowns by immediately closing down operations.

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Article provided by Elsevier in its journal International Business Review.

Volume (Year): 23 (2014)
Issue (Month): 4 ()
Pages: 761-773

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Handle: RePEc:eee:iburev:v:23:y:2014:i:4:p:761-773
DOI: 10.1016/j.ibusrev.2013.11.008
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