Document Type

Article

Publication Date

11-2015

Publication Title

Journal of International Economics

Volume

97

Abstract

To examine the effect of foreign direct investment, this paper compares the post-acquisition performance changes of foreign- and domestic-acquired firms in China. Unlike previous studies, we investigate the purified effect of foreign ownership by using domestic-acquired firms as the control group. After controlling for the acquisition effect that exists in domestic acquisitions, we find no evidence that foreign ownership can bring additional productivity gains to target firms, though both foreign and domestic acquisitions bring productivity improvements to target firms. In contrast, a strong and robust finding is that foreign ownership significantly improves target firms' financial conditions and exports relative to domestic-acquired firms. Foreign acquisition is also found to improve output, employment and wages for target firms. These findings conflict with the conventional view of productivity-driven FDI and highlight the financial channel through which FDI benefits the host countries.

Issue

2

First Page

325

Last Page

338

DOI

10.1016/j.jinteco.2015.07.006

ISSN

0022-1996

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