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

  • David Greenaway
  • Alessandra Guariglia
  • Zhihong Yu

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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