When do foreign subsidiaries outperform local firms&quest

Sea-Jin Chang, Jaiho Chung and Jon Jungbien Moon
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Sea-Jin Chang: National University of Singapore, Singapore, and Korea Advanced Institute of Science and Technology, Seoul, Korea
Jaiho Chung: Korea University Business School, Seoul, Korea
Jon Jungbien Moon: Korea University Business School, Seoul, Korea

Journal of International Business Studies, 2013, vol. 44, issue 8, 853-860

Abstract: This study explores when foreign subsidiaries outperform comparable local firms by evaluating the performance of local firms acquired by multinationals vs continuing local firms. This comparison allows us to single out foreign ownership effects. We employ the propensity score matching method and difference-in-differences approach in order to control for the endogeneity problem inherent in multinational firms’ acquisition decisions. We find strong evidence that foreign-acquired local firms outperform comparable local firms in China, especially when the foreign firm acquires local target firms with higher absorptive capacity or with modernized ownership structure.

Date: 2013
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