Abstract
This study explores when foreign subsidiaries outperform comparable local firms by evaluating the performance of local firms acquired by multinationals vs continuing local firms. This comparison allows us to single out foreign ownership effects. We employ the propensity score matching method and difference-in-differences approach in order to control for the endogeneity problem inherent in multinational firms’ acquisition decisions. We find strong evidence that foreign-acquired local firms outperform comparable local firms in China, especially when the foreign firm acquires local target firms with higher absorptive capacity or with modernized ownership structure.
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Acknowledgements
We thank Young-Kyu Kim and seminar participants at the Shanghai Jiao Tong University, University of Nottingham Ningbo China, the 2010 Strategic Management Society Annual Conference, and the 2012 Academy of Management Professional Development Workshop for helpful comments. Sea-Jin Chang appreciates financial support from the National University of Singapore, Research Grant R313-000-086-133. Jaiho Chung and Jon J Moon appreciate financial support from the SK Research Fund, Korea University Business School. Katie Brown, Hyejin Cho and Jiyoung Shin provided excellent research assistance.
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Accepted by Mariko Sakakibara, Area Editor, and John Cantwell, Editor-in-Chief, 17 June 2013. This paper has been with the authors for three revisions.
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Chang, SJ., Chung, J. & Jungbien Moon, J. When do foreign subsidiaries outperform local firms?. J Int Bus Stud 44, 853–860 (2013). https://doi.org/10.1057/jibs.2013.35
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DOI: https://doi.org/10.1057/jibs.2013.35