Comparative performance of foreign affiliates and domestic firms in the Indian machinery industry
The objective of this paper was to empirically examine the differences in the relative characteristics, conducts and performance of two ownership groups of firms, foreign affiliates of MNEs (FAs) and domestic firms (DFs), in the context of Indian machinery industry (IMI) during the period 2000/01 to 2006/07. For this purpose, we applied three alternative techniques, namely, univariate statistical method based on Welch's t-test comparing the mean value of a variable between two groups of firms, the multivariate linear discriminant analysis and dichotomous logit and probit models. The common and significant findings of the statistical analysis suggest that FAs have the greater technical efficiency, firm size, export intensity, intensity of import of intermediate goods and intensity of import of disembodied technology but the lower advertisement and marketing intensity and financial leverage. These findings also give some indications about the quality of FDI that has come to the IMI during the aftermath of economic reforms. First, it seems that the superior resources and capabilities of FAs confer them higher technical efficiency (but not overall performance or the monopoly power) and export intensity in relation to DFs. Second, as the intensity of import of intermediate goods in FAs is significantly higher than that of DFs, the former group tends to have fewer linkages with domestic suppliers of intermediate goods including capital goods, raw material, components and spare parts. In other words, DFs with their activities in the IMI are providing higher linkages with the indigenous suppliers. Third, the combined results on higher expenses on import of intermediate goods and import of foreign technology by FAs and no difference in gross profit margins between FAs and DFs point out that the FAs are probably engaged in the transfer of profits to the MNE system through intra-firm trade. This aspect, however, require further research which is beyond the scope of this study. Fourth, despite the higher import of intermediate goods and disembodied technologies, FAs are not spending higher amounts on R&D towards adaptation or/and absorption of the imported technology and indigenization of the imported inputs. As a result, R&D intensities of FAs and DFs are the same. Thus, we conclude that our empirical analysis supports the proposition that the FAs and DFs differ in terms of the many aspects of conducts and performance in the IMI.
|Date of creation:||18 May 2013|
|Date of revision:||20 Apr 2013|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Walter Kuemmerle, 1999. "The Drivers of Foreign Direct Investment into Research and Development: An Empirical Investigation," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 30(1), pages 1-24, March.
- Mueller,Dennis C., 1986.
"Profits in the Long Run,"
Cambridge University Press, number 9780521306935, December.
- Menon, Jayant, 1998. "Total factor productivity growth in foreign and domestic firms in Malaysian manufacturing," Journal of Asian Economics, Elsevier, vol. 9(2), pages 251-280.
- Wiwattanakantang, Yupana, 2001.
"Controlling Shareholders and Corporate Value: Evidence from Thailand,"
CEI Working Paper Series
2001-4, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
- Wiwattanakantang, Yupana, 2001. "Controlling shareholders and corporate value: Evidence from Thailand," Pacific-Basin Finance Journal, Elsevier, vol. 9(4), pages 323-362, August.
- Sizhong Sun, 2009. "How Does FDI Affect Domestic Firms' Exports? Industrial Evidence," The World Economy, Wiley Blackwell, vol. 32(8), pages 1203-1222, 08.
- Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
- Sanjaya Lall, 1979. "Multinationals and market structure in an open developing economy: The case of Malaysia," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 115(2), pages 325-350, June.
- Greenaway, David & Guariglia, Alessandra & Kneller, Richard, 2007. "Financial factors and exporting decisions," Journal of International Economics, Elsevier, vol. 73(2), pages 377-395, November.
- Bernhard Dachs & Bernd Ebersberger & Hans Lööf, 2008.
"The innovative performance of foreign-owned enterprises in small open economies,"
The Journal of Technology Transfer,
Springer, vol. 33(4), pages 393-406, August.
- Dachs, Bernhard & Ebersberger, Bernd & Lööf, Hans, 2007. "The Innovative Performance of Foreign-owned Enterprises in Small Open Economies," Working Paper Series in Economics and Institutions of Innovation 87, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
- Christian Bellak, 2004.
"How Domestic and Foreign Firms Differ and Why Does it Matter?,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 18(4), pages 483-514, 09.
- Christian Bellak, 2004. "How Domestic and Foreign Firms Differ and Why Does It Matter?," Department of Economics Working Papers wuwp087, Vienna University of Economics and Business, Department of Economics.
- Phan Minh Ngoc & Eric D. Ramstetter, 2004. "Foreign Multinationals and Local Firms in Vietnam's Economic Transition ," Asian Economic Journal, East Asian Economic Association, vol. 18(4), pages 371-404, December.
- Fredrik Sjoholm, 1999.
"Technology gap, competition and spillovers from direct foreign investment: Evidence from establishment data,"
Journal of Development Studies,
Taylor & Francis Journals, vol. 36(1), pages 53-73.
- Sjöholm, Fredrik, 1997. "Technology Gap, Competition and Spillovers from Direct Foreign Investment: Evidence from Establishment Data," SSE/EFI Working Paper Series in Economics and Finance 212, Stockholm School of Economics.
- Takii, Sadayuki, 2004. "Productivity Differentials Between Local and Foreign Plants in Indonesian Manufacturing, 1995," World Development, Elsevier, vol. 32(11), pages 1957-1969, November.
- Patibandla, Murali & Sanyal, Amal, 2005. "Foreign Investment and Productivity: A Study of Post-reform Indian Industry," Review of Applied Economics, Review of Applied Economics, vol. 1(1).
- Nayyar, Deepak, 1978. "Transnational Corporations and Manufactured Exports from Poor Countries," Economic Journal, Royal Economic Society, vol. 88(349), pages 59-84, March.
- Chkir, Imed Eddine & Cosset, Jean-Claude, 2001. "Diversification strategy and capital structure of multinational corporations," Journal of Multinational Financial Management, Elsevier, vol. 11(1), pages 17-37, February.
- Yih-Chyi Chuang & Chi-Mei Lin, 1999. "Foreign direct investment, R&D and spillover efficiency: Evidence from Taiwan's manufacturing firms," Journal of Development Studies, Taylor & Francis Journals, vol. 35(4), pages 117-137.
- Natália Barbosa & Helen Louri, 2005.
"Corporate Performance: Does Ownership Matter? A Comparison of Foreign- and Domestic-Owned Firms in Greece and Portugal,"
Review of Industrial Organization,
Springer;The Industrial Organization Society, vol. 27(1), pages 73-102, 08.
- Natália Barbosa & Helen Louri, 2003. "Corporate performance: does ownership matter? A comparison of foreign - and domestic - owned firms in Greece and Portugal," NIMA Working Papers 26, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho.
- Wignaraja, Ganeshan, 2008. "Foreign ownership, technological capabilities and clothing exports in Sri Lanka," Journal of Asian Economics, Elsevier, vol. 19(1), pages 29-39, February.
- Kwang Chul Lee & Chuck C Y Kwok, 1988. "Multinational Corporations vs. Domestic Corporations: International Environmental Factors and Determinants of Capital Structure," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 19(2), pages 195-217, June.
- Chengqi Wang & Li Yu, 2007. "Do spillover benefits grow with rising foreign direct investment? An empirical examination of the case of China," Applied Economics, Taylor & Francis Journals, vol. 39(3), pages 397-405.
- Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
- Rajah Rasiah & Geoffrey Gachino, 2005.
"Are Foreign Firms More Productive and Export- and Technology-intensive than Local Firms in Kenyan Manufacturing?,"
Oxford Development Studies,
Taylor & Francis Journals, vol. 33(2), pages 211-227.
- Rasiah, Rajah & Gachino, Geoffrey, 2004. "Are Foreign Firms More Productive, and Export and Technology Intensive, than Local Firms in Kenyan Manufacturing?," UNU-INTECH Discussion Paper Series 10, United Nations University - INTECH.
- Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Singh, Kuljot & Hodder, James E., 2000. "Multinational capital structure and financial flexibility," Journal of International Money and Finance, Elsevier, vol. 19(6), pages 853-884, December.
- Todd A Burgman, 1996. "An Empirical Examination of Multinational Corporate Capital Structure," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 27(3), pages 553-570, September.
- Correa, Paulo & Dayoub, Mariam & Francisco, Manuela, 2007. "Identifying supply-side constraints to export performance in Ecuador : an exercise with Investment Climate Survey data," Policy Research Working Paper Series 4179, The World Bank.
- Vinish Kathuria, 2001. "Foreign firms, technology transfer and knowledge spillovers to Indian manufacturing firms: a stochastic frontier analysis," Applied Economics, Taylor & Francis Journals, vol. 33(5), pages 625-642.
- Pfaffermayr, Michael & Bellak, Christian, 2000. "Why foreign-owned firms are different : a conceptual framework and empirical evidence for Austria," HWWA Discussion Papers 115, Hamburg Institute of International Economics (HWWA).
- Kumar, Nagesh, 1991. "Mode of rivalry and comparative behaviour of multinational and local enterprises : The case of Indian manufacturing," Journal of Development Economics, Elsevier, vol. 35(2), pages 381-392, April.
- Isabelle Huault & V. Perret & S. Charreire-Petit, 2007. "Management," Post-Print halshs-00337676, HAL.
- Doukas, John A. & Pantzalis, Christos, 2003. "Geographic diversification and agency costs of debt of multinational firms," Journal of Corporate Finance, Elsevier, vol. 9(1), pages 59-92, January.
- Richard Kneller & Mauro Pisu, 2007. "Industrial Linkages and Export Spillovers from FDI," The World Economy, Wiley Blackwell, vol. 30(1), pages 105-134, 01.
- NS Siddharthan & Stanley Nollen, 2004. "MNE Affiliation, Firm Size and Exports Revisited: A Study of Information Technology Firms in India," Journal of Development Studies, Taylor & Francis Journals, vol. 40(6), pages 146-168.
- Mittoo, Usha R. & Zhang, Zhou, 2008. "The capital structure of multinational corporations: Canadian versus U.S. evidence," Journal of Corporate Finance, Elsevier, vol. 14(5), pages 706-720, December.
- Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
- George Anastassopoulos, 2004. "Profitability differences between MNE subsidiaries and domestic firms: The case of the food industry in Greece," Agribusiness, John Wiley & Sons, Ltd., vol. 20(1), pages 45-60.
- Pradhan, Jaya Prakash, 2003. "Liberalization, Firm Size and R&D performance: A Firm Level Study of Indian Pharmaceutical Industry," MPRA Paper 17079, University Library of Munich, Germany.
- Hung-Gay Fung & Gerald Yong Gao & Jingyong Lu & Haim Mano, 2008. "Impact of Competitive Position on Export Propensity and Intensity: An Empirical Study of Manufacturing Firms in China," Chinese Economy, M.E. Sharpe, Inc., vol. 41(5), pages 51-67, September.
- Lall, Sanjaya, 1978. "Transnationals, Domestic Enterprises, and Industrial Structure in Host LDCs: A Survey," Oxford Economic Papers, Oxford University Press, vol. 30(2), pages 217-248, July.
- Homaifar, Ghassem A. & Zietz, Joachim & Benkato, Omar, 1998. "Determinants of Capital Structure for Multinational and Domestic Corporations," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 51(2), pages 189-210.
- Chhibber, Pradeep K & Majumdar, Sumit K, 1999. "Foreign Ownership and Profitability: Property Rights, Control, and the Performance of Firms in Indian Industry," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 209-238, April.
- Basant, Rakesh, 1997. "Technology strategies of large enterprises in Indian industry: Some explorations," World Development, Elsevier, vol. 25(10), pages 1683-1700, October.
- Rajah Rasiah & Asokkumar Malakolunthu, 2009. "Technological intensities and economic performance: a study of foreign and local electronics firms in Malaysia," Asia Pacific Business Review, Taylor & Francis Journals, vol. 15(2), pages 181-197, April.
- Kumar, Nagesh, 1990. "Mobility Barriers and Profitability of Multinational and Local Enterprises in Indian Manufacturing," Journal of Industrial Economics, Wiley Blackwell, vol. 38(4), pages 449-463, June.
- Camilla Jensen, 2002. "Foreign direct investment, industrial restructuring and the upgrading of Polish exports," Applied Economics, Taylor & Francis Journals, vol. 34(2), pages 207-217.
- Charles J P Chen & C S Agnes Cheng & Jia He & Jawon kim, 1997. "An Investigation of the Relationship between International Activities and Capital Structure," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 28(3), pages 563-577, September.
- Ramstetter, Eric D., 2004. "Labor productivity, wages, nationality, and foreign ownership shares in Thai manufacturing, 1996-2000," Journal of Asian Economics, Elsevier, vol. 14(6), pages 861-884, January.
- Eric Ramstetter, 1999. "Trade Propensities and Foreign Ownership Shares in Indonesian Manufacturing," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 35(2), pages 43-66.
- George Anastassopoulos, 2003. "MNE subsidiaries versus domestic enterprises: an analysis of their ownership and location-specific advantages," Applied Economics, Taylor & Francis Journals, vol. 35(13), pages 1505-1514.
- Talaat Abdel-Malek, 1974. "Foreign Ownership and Export Performance," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 5(2), pages 1-14, June.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:33076. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.