The Effect of Foreign Ownership on Firm Performance: Evidence from Emerging Market

Abstract

With the surge up in foreign direct investments, the percentage of foreign ownership in total has increased within the domestic firms in emerging markets and especially in Turkey. Due to the advantages of foreign ownership, firm profitability is expected to ameliorate as opposed to domestically owned firms. Empirical studies conducted on this topic demonstrate conflicting results. The main purpose of this paper is to analyze the effect of foreign ownership on firm performance for the publicly listed companies in Turkey using a panel of 256 Turkish firms over the 2009-2014 period. “Generalized method of moments” is used as the main methodology, which helps overcoming the endogeneity problem to a great extent. The results derived from this study indicate that foreign ownership improves firm profitability up to a certain level; however, after the threshold limit, the surge up in foreign ownership starts to deteriorate firm performance.

Keywords: Foreign Ownership; Foreign Sales; Firm Performance; Generalized Method of Moments; Endogeneity; Return on Asset

Australian Academy of Accounting and Finance Review, vol 2, issue 4, October 2016, pp 363-371