Foreign ownership, firm performance, and the geography of civic capital

Matthias Bürker, C. Franco and Gaetano Alfredo Minerva

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: It is well established in the literature that foreign affiliates are subject to a series of governance and assimilation costs that deteriorate their performance. This is particularly relevant for firms which have been recently acquired by foreign investors. We employ the variation in civic capital across Italian provinces as an exogenous determinant of these governance costs. We derive the testable implication that there should be a clean evidence of a negative effect of foreign ownership on performance in areas where civic capital is low. As the level of local civic capital increases, this reduces the scope for internal transaction costs, and makes the governance of foreign affiliates easier, and their performance better. We take this prediction to the data and find confirmation of our conceptual framework. Our analysis underlines the importance of the geographic heterogeneity of informal institutions when analyzing the effect of foreign ownership on firm performance.

JEL-codes: D21 D23 F21 F23 R30 Z13 (search for similar items in EconPapers)
Date: 2011-09
New Economics Papers: this item is included in nep-eff
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Journal Article: Foreign ownership, firm performance, and the geography of civic capital (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:wp782

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