Performance And Internalization

Since adoption of"Reform and Open-up"policy, Chinese manufacturing firmsare gaining more and more market share in global market, when output and export areincreasing continuously. China has become center of worldwide manufacturingindustry. At the same time, reform is never being stopped, which means more marketoriented, more financial market freedom and more foreign direct investment invarious provinces. All these are stimulus of industry internationalization.Whether Chinese listed companies being excellent group are more international,whether internationalization is related institutional factors and whetherinternationalization improves performance are central topics of this paper. If all theseare true, the government must go great length to deepen reform and improveinstitution, which means helping hands.Using A-Share listed manufacturing firms in Shanghai Stock Exchange andShenzhen Stock Exchange from 2000 to 2007 as sample; we study the institutionalfactors that spur industry internationalization and the positive relation betweeninternationalization and performance.Two indices are taken to measure internationalization. First, percentage offoreign sales of total sales is used to measure the Degree of Internationalization (DI).Second, whether foreign sales exist is used to measure the Probability ofInternationalization (PI). Return on Asset (ROA), Return on Equity (ROE) and Returnon Sales (ROS) are used to measure performance. Institutional factors include Degreeof Market Orientation (DMO), Degree of Financial Freedom (DFF) and Degree ofForeign Direct Investment(DFDI). Industry Clustering Index (ICI) and IndustryIntegration Index (â…¢) are developed using modern methods.First, this paper illustrates performance difference between international firmsand local firms. ROE and ROS of these two type firms are of little difference. But,ROA of international firms is significantly higher than that of local firms. Betterinstitutional circumstance, which means higher DMO, higher DFF and higher DFDI,intensify the positive effect of internationalization on ROA, but not on ROE and ROS.Second, this paper clarifies effects of DI on performance. DI is positively relatedto ROA, but insignificantly related to ROE and ROS. Better institutional circumstance,which means higher DMO, DFF and DFDI, intensify the positive effect of DI onROA, but not on ROE and ROS.Third, robust checks, which test relation between ROA and PI and relationbetween ROA and DI are given using heteroskedasticity adjustment methods and dynamic panel data model. The results are consistent with that above.Forth, the relation between performance and DI is tested. If ROA is used asperformance index and percentage of foreign sales of total sales as Dâ… ,â…¡furtherintensify the positive effect of DI on ROA. In other circumstance, the similarconclusion cannot be reached.Fifth, this paper investigates the relation between degree of internationalizationand institutional factors. The results show that: (1) the higher DMO, the higher DI; (2)the higher DFF, the higher DI; (3) the higher DFDI, the higher DI. All institutionalfactors are positive stimulus, which are proven from several rank and score of thesefactors. But we cannot conclude that ICI is positively related to DI.Last, this paper studies the relation between probability of internationalizationand institutional factors. The results show that: (1) the higher DMO, the higher PI; (2)the higher DFF, the higher PI; (3) the higher DFDI, the higher PI. All institutionalfactors are positive stimulus, which are proven from several rank and score of thesefactors. But we cannot conclude that ICI is positively related to PI.This paper collects all data that can be collected and explores quantitatively therelation between internationalization and performance, relation betweeninternationalization and institutional factors, and its intensifying effects onperformance by means of internationalization. We feature the institutional factors inthis paper, which is gaining more and more notice in academic area.The conclusion also has practical meaning. First, industry internationalizationplays important roles in improving performance of firms. Second, better institutionalcircumstances intensify the positive role of industry internationalization.Therefore, we must make great efforts to improve institution, which mean moremarket oriented policy, more financial freedom and more foreign direct investments invarious provinces.