The effect of the degree of foreign ownership on firms' performance

Issue: 1/2016

Aneta Bobenič Hintošová

University of Economics in Bratislava, Faculty of Business Economics with seat in Košice, Department of Management, Tajovského 13, 041 30 Košice, Slovakia. E-mail:

Zuzana Kubíková

University of Economics in Bratislava, Faculty of Business Economics with seat in Košice, Department of Management, Tajovského 13, 041 30 Košice, Slovakia. E-mail:

A large number of studies have compared the performance of foreign-owned and domestic firms. However, only a limited number of studies have investigated the effect of the degree of foreign ownership on a firm's performance. We attempt to fill this gap in the literature by conducting research that distinguishes not only between domestic and foreign-owned firms, but also between wholly and partly foreign-owned firms. We also examine the possible non-linearity of the performance-ownership relationship. We divide the firms in our study into three groups by their ownership - domestic, foreign, and joint ventures. We use a regression analysis to explore whether foreign ownership influences the firms' performance, measured by several variables such as profitability, innovation performance (measured by gross expenditures on research and development activities), numbers of employees involved in research and development, production, value added, leverage and net working capital intensity. The results of our research indicate that there is a statistically significant difference in firms' performance as a result of foreign ownership in all variables except the number of research and de-velopment employees and leverage. Moreover, we show that foreign ownership and performance are linked by an inverted U-shaped relationship. A firm’s performance increases with greater foreign ownership up to the range of 61-65 %, and declines there-after.

DOI: 10.1515/revecp-2016-0003
JEL: L25, G32, F23
Keywords: Slovak republic, performance, joint ventures, foreign ownership, foreign investor

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