Foreignness and exit over the life cycle of firms

José Mata and Ernesto Freitas
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Ernesto Freitas: Nova School of Business and Economics, Lisboa, Portugal

Journal of International Business Studies, 2012, vol. 43, issue 7, 615-630

Abstract: Received wisdom indicates that, owing to a liability of foreignness, foreign firms exit with greater likelihood than do comparable domestic firms, and that the difference attenuates as firms age and overcome the liability. We posit that foreign firms are also intrinsically more volatile and footloose than domestic ones, and that this leads to an increasing divergence between the exit rates of foreign and domestic firms. Empirically, we find that the difference between exit rates of foreign firms and domestic firms increases with age, as exit of foreign firms increases with age while that of purely domestic firms decreases. Exit rates of domestic-based multinationals do not change significantly with age; they are between those of foreign and purely domestic firms, but are closer to the latter. This suggests that the footlooseness observed for foreign firms is due to foreignness more than to multinationality.

Date: 2012
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