The Effect of Foreign Strategic Investors on the Performance of PRC H-Firms: An Exploratory Study

Eva Chan

Chinese Economy, 2007, vol. 40, issue 5, 84-99

Abstract: Foreign strategic investor (FSI) is a recent form of entry for foreign investors in the People's Republic of China (PRC) entities. An FSI is a nonâPRC investor who has an equity stake in an H-firm and aims to maintain long-term relations with the H-firm. An FSI has board representation that gives the strategic investor the ability to intervene. The study finds that H-firms with FSIs are initially less efficient H-firms as they underperform their peers before initial public offerings (IPOs). I argue that inefficient PRC H-firms seek FSIs for help in improving their performance. However, when testing performance improvement after the entry of FSIs, H-firms with FSIs show only nominal improvement in terms of net profit margin when compared with their peers, but the results are not significant. A bigger sample of performance data for the postâIPO period is needed in order to test the FSI's ability to improve performance for H-firms.

Date: 2007
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