The Dynamic Relationship Between Foreign Ownership And Corporate Performance

Based on the cross-border direct investment theory and ownership structure, we examine the relationship between the degree of foreign ownership and performance of recipient firms, using a panel of400firms over the period2007-2010in Shaanxi Province.We find that wholly foreign owned firms perform better than joint-ventures in productivity, but worse in profitability. The relationship between the degree of foreign ownership and performance of recipient firms is nonlinear, it varies with industry heavily. In manufacturing, it leads to an U-shaped ownership-performance relationship; In real estate industry, it leads to an inverse U-shaped ownership-performance relationship. Our empirical findings enrich the empirical content of this area. Conclusions of this study contribute to understanding the intrinsic link between FDI and economic growth. Furthermore, it is pointed that some domestic ownership is necessary to ensure optimal performance since it has the advantage of more knowledge of the local market and legal environment and closer connection with local government.