Foreign ownership and economic performance of emerging market firms: A control perspective

Emerging market firms may resort to foreign ownership to gain direct access to better resources possessed by foreign investors. However, they relinquish control to foreign investors, which may be detrimental to their economic performance due to their weak corporate governance system. Thus, in the thesis, a control perspective is taken to understand the implication of foreign ownership for the economic performance of emerging market firms. Put differently, the thesis explains how the economic performance of emerging market firms is influenced by the foreign control associated with foreign ownership. Using a sample of Indian firms over a 20-year period (2000-2019), it provides evidence suggesting that the economic performance advantage of foreign-invested firms over domestically-owned firms is contingent on the level of effective foreign control. The thesis suggests that foreign-invested firms possess economic performance advantage over domestically-owned firms only when level of effective foreign control is low. Also, the thesis put forth that a prerequisite for emerging markets firms to facilitate their economic performance via foreign ownership is taking the optimality of foreign ownership into consideration. It suggests that emerging market firms can improve their economic performance by possessing foreign ownership; however, they experience reduced economic performance when foreign ownership is beyond a certain (threshold) level. Lastly, the thesis shows that there is curvilinearity in the relationship between foreign ownership and the economic performance of emerging market firms. It shows that the curvilinear relationship is inverted U-shaped, and it is moderated by firm heterogeneity associated with size and age. Overall, the thesis presents evidence that is antithetical to the widespread narrative that increased foreign ownership, which leads to enlarged foreign control, results in superior economic performance of firms. It implicitly argues that enlarged foreign control potentially has an adverse consequence for the economic performance of emerging market firms.